The govt is seeking nearly Tk 1.38 billion in loans from domestic banks to cover its budget deficit
Published : 07 Jun 2024, 05:21 PM
Finance Minister Abul Hassan Mahmood Ali says that there is no reason to worry about the government’s dependence on bank loans to meet the budget deficit.
At a post-budget press conference at the capital's Osmani Memorial Auditorium on Friday, he said, "Taking loans from banks is standard procedure. It is done by all the finance ministers in all the budgets. The government does it and it is much more extensive in developed countries.”
“We have kept it [the deficit-to-GDP ratio] within 5 percent this time. As such, it’s not that important, so you have no reason to worry about it.”
The finance minister presented his budget proposal of Tk 7.97 trillion for the 2024-2025 fiscal year in the parliament on Thursday.
To fund this spending, he plans to raise Tk 5.41 trillion from the government revenue, which will be a big challenge to implement.
Despite this, the overall deficit between the government’s spending and revenue will be Tk 2.51 trillion, which is still 8 percent higher than the revised budget for the fiscal year 2023-24.
The finance minister plans to take loans from domestic and foreign sources to meet the deficit. Borrowing from domestic banks is key to covering the shortfall.
The budget has set a target of getting nearly Tk 1.38 billion in loans from the banking sector, which is 17.25 percent of total government spending.
Finance Secretary Khairuzzaman Mozumder, accompanying Ali at the press conference, addressed concerns about government borrowings from banks exacerbating a liquidity crisis. He clarified that such borrowings are not the cause of liquidity issues within banks.
"We prioritise foreign loans as a standard approach, but as we graduate from the category of Least Developed Countries, these loans are decreasing. Consequently, we are increasingly turning to domestic sources," he explained.
Khairuzzaman also discussed the government's shift in borrowing strategy: "Historically, our focus was on savings certificates, which, while secure, come with higher interest costs. This is why we're steering away from them and toward utilising the banking system more."
The secretary revealed that the government's borrowing from banks in the current fiscal year exceeded its target by 18 percent. Despite this, Khairuzzaman is optimistic that the full Tk 1.37 trillion projected for borrowing in the upcoming financial year starting July 1 might not be necessary.
"When setting our targets, we anticipate a deficit since NBR may not meet the revenue goals. However, the actual amount borrowed from banks may be less if NBR's revenue collection exceeds expectations," he added.