Govt’s bank borrowing to remain high in FY25

The government is going to narrow down the budget deficit in the new budget to appease the International Monetary Fund, but that will not help in cutting its reliance on bank borrowing.

Finance Division officials said that the high reliance on borrowings especially from the banking source would remain in the new budget for FY25 amid a-decade high inflation. 

Economists blamed the lower than expected revenue generation trend and the government policy to discourage borrowing from the savings certificates for the high dependency on bank borrowing.

Borrowing from banks is not good since it discourages private sector investment, said former World Bank Dhaka office chief economist Zahid Hussain.

Finance Division officials said that the budget deficit in FY25 is likely to be at 4.6 per cent of the gross domestic product from 5.2 per cent in the outgoing FY24.

Under the current $4.7 billion loan programme with the International Monetary Fund, the government is committed to keep the budget deficit below 5 per cent of GDP for the programme period until May 2026.               

Of the new budget deficit, Tk 1.29 lakh crore is likely to be taken from the banking sources and Tk 1.20 lakh crore from the foreign sources.

Finance Division officials said that the government is borrowing almost the same amount of fund from the banking sources in the outgoing FY24. Some Tk 16,000 crore will be borrowed from the non-banking sources in the coming budget, mainly from the sales of savings certificates, the annual sales of which exceeded Tk 50,000 crore back in FY17.

Policy Research Institute executive director Ahsan H Mansur said that discouraging the sale of savings certificates was not a bad idea since it helped the government to pay less amounts in interest to the savings certificates holders.

But the low revenue generation is diminishing the benefits, he said.

The country’s current tax-GDP ratio is 7.6 per cent, lowest in South Asia.

Low revenue generation compels the government to heavily depend on borrowing from other sources to meet the deficit, said economists.

They also said borrowing from the banking sources, especially from the Bangladesh Bank will not help its efforts to check the inflation remaining a-decade high for the past 21 months.

Expectations are running high that finance minister Abul Hassan Mahmood Ali would announce new measures to bolster revenue generation in the new financial year beginning from July 1.

Finance Division officials said that the new national budget for the financial year 2024–2025 will be announced on June 6 in that parliament against the backdrop of persistent dollar shortages.

The finance minister is likely to announce the budget outlay at Tk 7,97,000 crore for FY25 and overall revenue income at Tk 5.32 lakh crore.

The annual development programme in FY25 is likely to be fixed at Tk 2,65,000 crore.

The growth in the gross domestic product is likely to be fixed at 6.75 per cent and the inflation at 6.5 per cent.