Borrowing up ahead of polls

With the parliamentary elections approaching, the government of Bangladesh appears to be on a spending spree, specially on development projects, with bank borrowings going up.


The first six months (July-December) of the current 2012-13 fiscal recorded over Tk 106 billion taken in loans from scheduled banks. By May-end it was over Tk 187 billion.

Economists feared these funds are wasted on ‘political gimmicks’.

This is the last year of the ruling Awami League-led coalition government.

National elections are expected at the year-end or beginning of 2014.

The government faced much criticisms throughout fiscal 2011-12 for high volume of bank loans, which fell after criticism from various quarters.

But now bank borrowings seem to be on the rise again.

Though in overall, the borrowings are less than in 2012, loans taken from scheduled banks have increased alarmingly.

Bangladesh Institute of Development Studies (BIDS) Research Director Zaid Bakht said loan flow from the private sector owes to poor investment conditions in the country because of political unrest.

There was huge amount of ‘idle money’ in the banks, he told The government is taking money from there because there is quite a bit of it available, he said.

“It is not possible to fund development projects only with funds raised from taxes. There is money in the banks… lying idle… there is no harm if government borrows from there.”

“But these funds should not wasted on a political agenda,” Bakht warned.” It is okay if this money is used for priority projects.”

Zaid Bakht said government borrowing might increase further. “The government might want to complete important projects for poll-time popularity.”

A Bangladesh Bank official said the government was considering inflation-related issues for not borrowing from the apex bank.

Bangladesh Bank Chief Economist Hassan Zaman said, “It is mainly to check inflation that the government is not borrowing from the central bank. When money is borrowed from us, money supply increases in the market, and inflation rises.”

Businessmen had been complaining of reduced loan quantam from the private sector in wake of the government borrowing spree.

However, Zaman said government borrowing will not affect businesses this time. “The banks have a lot of money. It has not been invested. Even after government borrowing, quite a lot of funds will lots will still be available. There will be no problem.”

According to Ministry of Plannning, the first nine months (July-March) of the current 2012-13 fiscal year saw 49 percent implementation of the government’s Annual Development Programme (ADP). Last fiscal year, the rate was 45 percent.

Even in the past, during the last year of a government term , there has been high rates of ADP implementation.

According to Bangladesh Bank information, the total loans taken from scheduled banks amounted to over Tk 187 billion. But no loans were taken from the central bank. Instead, Tk 70 billion in debts were repaid to it by the government.

In the 10 months (July-May) of the current fiscal, loans mounted to more than Tk 116 billion. Last year, it was Tk over 155 billion.

There is no precise information on the amount of ‘idle money’ – not under investment – in the banking sector. The central bank claims it could be as high as Tk 220 billion.

The banks put the amount to be over Tk 1 trillion.

Zaid Bakht said he thought the government was cautious on taking loans from Bangladesh Bank so that the opposition cannot blame it for inflation.

In the budget for 2012-13 fiscal, the government aimed to borrow Tk 230 billion from banks to cover deficits.

Source: bdnews24


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