Increase in govt borrowing from domestic sources does not bode well

The government’s borrowing from domestic banks and non-banking sources was 16 per cent higher in the just-concluded fiscal year as it had to rely on debts to finance public expenditures amid lower revenue collections. The government took Tk 133,800 crore in loans from domestic sources in 2022-23, excluding the net sales of national savings certificates, according to data from the Bangladesh Bank. It was Tk 115,216 crore in 2021-22.

This will create demand as the central bank is printing money to lend to the government. This fresh money is coming to the market, resulting in high inflation. However, experts said if the government borrowed from banks, there would not have much effect on inflation. And the concern remains the same for the new fiscal year as the government keeps borrowing. The main reason is the failure to collect the required amount of revenue. We are already seeing the consequence of that. For the 11th consecutive year, the National Board of Revenue missed its tax target in FY23 in the face of slowing growth of collections amidst economic slowdowns and ambitious goals set by the government. The collection grew only 8 per cent in the year.

The government planned to borrow Tk 140,425 crore from domestic sources in FY23. And it managed to could keep debts within the plan although borrowing from the banking system exceeded its projection by 7 per cent year-on-year. The government’s debt from banks stood at around Tk 123,000 crore, up from Tk 115,425 crore. And in the first four days of the new fiscal year, it took Tk 3,538 crore as loans from banks. Fiscal space refers to the financial resources available to a government for policy initiatives through the budget and related decisions. The government plans to borrow about Tk 258,000 crore from local and foreign sources in FY24 to implement the Tk 761,785 crore national budget. Of the amount, it wants to secure 60 per cent from domestic sources, mainly banks.
If the government borrows from banks, it would require to pay a higher interest rate and the overall interest rate in the market would go up that would affect businesses. It appears that the government is not willing to dishearten businesses. But the irony is that it is the common people who will pay for higher inflation.