Govt moves to cut bank borrowing

THE government may not allow ministries anymore to use local funds as an alternative to foreign funds in a bid to discourage budgetary spending with loans from the banking system, finance ministry officials said Saturday, Rejaul Karim Byron writes in The Daily Star.

If the measure comes into effect, the ministries will have to keep local and foreign funds separate for any project.

A planning ministry official said the ministries go for the local fund as there are various strings attached to the donor funds.

The government is likely to take the step in line with the conditions of the International Monetary Fund (IMF) for its possible $1 billion credit, the officials said.

An official at the finance ministry, who requested anonymity, said the government has already taken some measures to meet the conditions put forth by the IMF and more would be taken in the future.

The lending agency advised the government to issue a circular to the ministries concerned by January this year indicating that shortfalls in the externally-funded ADP budget will not be substituted with taka funding.

Sources at the finance and planning ministries said that failing to utilise foreign funds, the ministries have been using the government’s own fund. It is creating heavy pressure on the bank borrowings.

According to the statistics of the Implementation Monitoring and Evaluation Department (IMED), the government in the first five months of the current fiscal year utilised only 13 percent of the allotted project aid — lowest in the last four years.

On the contrary, they spent 25 percent of their allocation from the local fund which is highest in the same period.

The finance ministry official said it is not mandatory to take permission from the finance division for spending up to the third instalment of the yearly allocation.

As a result, when the ministries find hindrances in getting foreign funds, they turn to the own fund to meet the project costs, he added.

The planning ministry and the Economic Relations Division of the finance ministry have held several meetings with the ministries concerned over the last one and a half years but the situation did not improve.

According to Bangladesh Bank statistics, till January 3, the government borrowed Tk 17,300 crore from the banking system. The target in this year’s budget is Tk 18,957.

However, the target has already been revised at more than Tk 25,000 crore.

The finance ministry said the borrowing may get doubled if the government did not cut spending.

The IMF last month gave a number of recommendations as conditions attached with its ECF loan. To ease pressure on the bank borrowings, it suggested in the beginning of January that fuel price is increased by Tk 5 per litre. The government has already implemented it.

Besides, the IMF asked the government to increase electricity price at the retail level in February.

The major lending agency said as a result of the hike in fuel and power prices, additional demand for subsidy by Bangladesh Petroleum Corporation and Power Development Board will go down by Tk 15,000 crore in the current fiscal.


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