Government borrowing from the Bangladesh Bank (BB) has reached a concerning level, surpassing any amount in the past 50 years, according to prominent economists. 

During a recent post-budget discussion in Dhaka, these economists proposed reconsidering the practice of obtaining cheap loans from the central bank for budget financing. 

They also suggested reducing budget expenditures, including the Annual Development Programme (ADP), as a means to narrow the fiscal deficit.

The economists anticipate a further acceleration in government borrowing from the central bank in the upcoming fiscal year, potentially reaching Tk 1.4 trillion. 

This surge in borrowing is expected to add to inflationary pressures within the economy.

By the end of April in the current fiscal year, the government had already borrowed over Tk 700 billion from the central bank. Over the span of ten months, borrowing from the central bank increased by Tk 575.61 billion.

During the program, Dr. Ahsan H Mansur, Executive Director of the Policy Research Institute (PRI), emphasized the need for decisive action to achieve macroeconomic stability rather than remaining idle. 

The PRI Study Centre on Domestic Resource Mobilization (PRI-CDRM) organized the event and featured a keynote presentation by Dr. Mohammad Abdur Razzaque, Research Director of PRI.

Dr. Razzaque projected that government borrowing from the central bank would accelerate further in the final two months of the current fiscal year, resulting in a total borrowing amount exceeding Tk 1 trillion by June 2023.

The PRI paper highlighted concerns about the rapid increase in the central bank’s Net Domestic Assets (NDA) and the simultaneous decline in its Net Foreign Assets (NFA). 

This imbalance could potentially exert pressure on the exchange rates of the US dollar and the Bangladeshi taka, resembling a country under stress.

Dr. Razzaque also stressed the necessity of mobilizing approximately $10 billion in net financing from external sources to support budget financing, equivalent to around Tk 1.0 trillion. 

He noted that the country would require a gross financing of approximately $12 billion to meet principal obligations totaling $2.0 billion.

Dr. Mansur warned that the fiscal deficit exceeds the size of the Annual Development Programme (ADP) and that the ADP is being implemented through borrowed resources. 

He called for a trade-off to attain macroeconomic stability, suggesting that the government should take strong measures to narrow the fiscal gap, including reducing the ADP.

Dr. Razzaque highlighted the government’s disregard for reforming the National Board of Revenue (NBR), which has accumulated problems over the years. He recommended allowing the market to determine interest rates and exchange rates instead of controlling them.

To meet the FY23 target, the country needs to achieve an additional $4.6 billion in foreign exchange reserves in the last month. Dr. Razzaque expressed concern over the rapid increase in interest payments, projecting that it might exceed Tk 1,000 billion in FY24.