Internal borrowing rise bane for economy

A HUGE increase in government borrowing from domestic sources in the immediate past financial year does not, indeed, augur well for the economy. While the total government borrowing in 2015–16 was Tk 40,392 crore, about 45 per cent higher than that in 2014–15, most part of the debt, which was Tk 33,688 crore, as New Age reported on Saturday, came from non-banking sources, 95 per cent of which belonged to sales of savings tools. Moreover, the borrowing from banking sources increased by 264 per cent to Tk 6,704 crore in 2015–16 from Tk 1,841 crore in 2014–15. Although the borrowing from foreign sources increased by 18.51 per cent to Tk 12,699 crore, compared with the corresponding period of the previous year, as of May 2016, foreign grants stood at only Tk 3,218 crore in the period, which was 6.69 per cent lower than the previous year’s receipt. The staggering increase in the past year’s domestic borrowing was a consequence of the shortfall in external borrowing, especially the low-cost one, and grants, which can be attributed to the reported lukewarm relationship between the incumbents and foreign countries and agencies generally regarded as the source of concessional loans disbursed usually at less than 1 per cent interest rate.
Although the total borrowing was within 5 per cent of the gross domestic product, as estimated in the budget, the worrying increase in domestic borrowing, if allowed to continue, is likely to adversely impact the economy, in general, and the banking sector, in particular. The largest portion of the debt, as mentioned earlier, came from savings tools that were sold at up to 12 per cent interest rates, much higher than the interest rates at which commercial banks collected deposits. Banks now collect deposits at little more than 5 per cent interest rate. Hence, the more the sales of savings tools, the more commercial banks will lose depositors at a cost of their business. At the same time, the situation will require the government to spend a huge amount unnecessarily on the repayment of debt every year, which will deprive different sectors involving high public interests, such as education and health, of necessary allocations. It may also end up harming the macroeconomic management crucial for the smooth functioning of the economy. It is important to note that although sales of savings tools were originally intended to help fixed- and low-income people get some extra earning, reports have it that a large section of wealthy people, including many undisclosed money holders, have been investing in the scheme in recent years, amidst an overall declining investment climate for various reasons, including political uncertainty.
The government is expected to immediately take corrective measures, including ensuring better debt management, to help the economy to run smoothly. It needs to reduce its over-dependence on internal borrowing, in the process, by confining savings scheme to pensioners, aged people and small savers.

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