Bank loans

The government is urged to be efficient on spending unrelated to bank loans

TBS Report

June 04, 2022, 10:40 p.m.

Last modification: June 04, 2022, 10:44 p.m.

One of the factors contributing to the failure of SMEs is the lack of access to affordable institutional financing. Photo: Mumit M/TBS

“>

One of the factors contributing to the failure of SMEs is the lack of access to affordable institutional financing. Photo: Mumit M/TBS

Strong points

  • Banks eager to lend to government avoid small lenders
  • Upcoming budget plans 141,818 Tk of loans from domestic sources
  • Of this amount, 101,818 cr will come from the banking sector
  • Experts say excessive bank borrowing weakens monetary policy

Economists have urged the government to control wasteful non-development budget spending for maximum use of bank borrowing.

“Banks feel comfortable lending to government, not to small businesses. It’s actually a loss for our country,” Salehuddin Ahmed, former governor of Bangladesh Bank, said in a webinar on Saturday.

He said government loans offer easy profits, while small business loans require considerable effort from banks. But small business loans generate jobs and are good for the country in the long run.

The BIBM Certified Bankers Alumni Association (BCBAA) organized the program.

The former central bank governor claimed the country’s lending burden was increasing. “It is important to ensure that we use the loan as needed, and we control wastage, especially in non-development budget expenditures.”

The government plans to secure Tk 141,818 crore in loans from different domestic sources to tackle the deficit in the upcoming national budget for the financial year 2022-23. Of the total target of Tk 141,818 crore from domestic sources, Tk 101,818 crore will come from the banking sector and the remaining Tk 40,000 crore from other sources of lending including savings certificates, according to the figures. Ministry of Finance sources.

The former governor said government bank borrowing was increasing as revenue collection was not sufficient to cover the budget deficit.

Insisting on the scrutiny of foreign loans, he said undertaking more mega-projects will certainly attract more foreign loans. “We have to ask ourselves if our ongoing foreign-funded megaprojects will weigh on us in the future, as soaring US dollar exchange rates will keep increasing pressure on the economy.”

The economist said that if the government borrows too much from the bank, the central bank’s monetary policy weakens and becomes ineffective.

Mustafizur Rahman, Distinguished Fellow of the Center for Policy Dialogue (CPD), said the next budget would prioritize grants. “It’s a question of whether the government takes this subsidy on its own shoulders or passes it on to the people. If the government takes it on its own shoulders, then the budget deficit will widen.”

He said the country’s private sector credit growth is on the rise, but remains below the central bank’s target. “Credit growth to the private sector was around 12.5% ​​in April, compared to 9.5% pre-Covid. This means that demand for bank loans is increasing. Now the more expensive dollar will further increase the demand for loans .”

He further said that if foreign loans on easy terms could be put to good use, they should be preferred.

Economist and adviser to the Bangladesh Competition Commission, MS Siddique, said government borrowing is tied to its policy decisions.

“I would say that the government subsidizes savings certificates a lot referring to it as corporate social responsibility. But the middle and upper classes benefit from it,” he commented.

Ms Siddique said foreign purchases dominate government procurement, while Bangladesh makes project purchases against foreign loans. Referring to a World Bank study, he said wastage of funds in projects hovered around 40%.

“If we could control corruption and be effective, we would be able to minimize the deficit by 40%,” he added.