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Home Bangladesh

Government compelled to seek loans from banks to cover a budget shortfall

Government compelled to seek loans from banks to cover a budget shortfall
by Insider Desk
June 18, 2023

The government of Bangladesh has announced its intention to borrow from the banking sector to address the budget deficit.

Planning Minister MA Mannan stated that many countries, such as the United States, Saudi Arabia, and Japan, resort to bank loans when necessary, and Bangladesh will follow suit.

The minister made these remarks during a seminar titled ‘Budget 2023-24: Education and Employment’ at the University of Dhaka.

To manage the budget deficit in the upcoming fiscal year, the government plans to rely heavily on borrowing from the Bangladesh Bank, similar to the current year.

This reliance stems from the tax authority’s consistent failure to generate sufficient revenue. However, this borrowing strategy may lead to inflationary pressures, exacerbate economic volatility, and crowd out the private sector.

The government has set a target of Tk 261,785 crore for deficit financing in the 2023-24 fiscal year, with Tk 132,395 crore expected to come from the banking system.

Minister Mannan acknowledged concerns that increased government borrowing from banks might limit business access to loans. Nevertheless, the government finds itself compelled to borrow under the prevailing circumstances.

The government plans to secure Tk 1,55,395 crore from domestic sources and Tk 1,02,490 crore from external sources in the fiscal year 2023-24.

Professor M Abu Eusuf, a development studies department professor at the University of Dhaka, cautioned that if revenue collection weaknesses persist, the debt burden will continue to rise. The National Board of Revenue is projected to fall short of its collection target for the 11th consecutive year, despite a surge in tax collection in May.

Allocating funds to specific sectors should be accompanied by effective implementation, free from corruption and irregularities.

Prof Md Akhtaruzzaman, Vice-Chancellor of the University of Dhaka, highlighted the interdependence of education and employment and urged the government to prioritize this issue in budget allocation.
Rashed Al Mahmud Titumir, Chairman of the development studies department, warned that further appreciation of the US dollar would exacerbate the hardships many citizens face. Consequently, the government must take appropriate measures to address the situation.

Tags: Loan
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