The government has been repaying more than it has borrowed from the banking system. As a result, in the first six months of the current fiscal year, the government's net bank borrowing is very little compared to that in the previous fiscal year.
The Monthly Report on Government Domestic Borrowing published by the central bank on Wednesday says the tendency of borrowing less from banks suggests that the budget deficit may be less than the target at the end of the current financial year.
Of Tk5.68 lakh crore budget for the current financial year, the deficit is Tk1.85 lakh crore, which is 5.8% of GDP.
In this context, the former lead economist of the World Bank's Dhaka office Zahid Hussain told The Business Standard that when budget expansion is needed to recover the economy from Covid shocks, a reverse is happening.
He said in order to cope with the impact of Covid-19, it is necessary to move for budget expansion.
In this case, there will be no shortage of government funds because the demand for loans in the private sector is low, and so the government will easily be able to use the lazy money lying in the banks, he said.
The private sector credit growth increased in July-August but declined in October. In December, the growth came down to 8.37%. The target was lowered to 11.5% in December.
Dismissing the fear of rising inflation due to money supply, Zahid Hussain said inflation will not rise as demand in the private sector is weak.
Imports have declined by about 7% during July-December of the current fiscal year due to declining demand, he said, adding that the risk of inflation is related to supply. For example, if for some reasons, rice is not imported in time, it will affect the price.
He cited the lack of implementation of the Annual Development Programme to be one of the major reasons behind the reduction in government spending.
In July-December of the last financial year, where more than Tk57,000 crore ADP was implemented, the amount of implementation was Tk51,000 crore in the same period of the current financial year.
Disagreeing with the government statement that the slow pace of project implementation is due to the impact of corona, the economist said the implementation of big projects involving foreigners was somewhat slow.
According to him, the implementation rate of the projects with the government own fund is low, and in this case, the main reason is lack of implementation capacity, rather than Covid.
Corona has reduced the government spending in many areas, including halting construction of new buildings, reducing extra staff costs, stopping foreign travel, reducing hospitality costs, etc.
He said reducing wasteful government spending is good for the economy. However, declining development spending is not a good sign at all.
As the government expenditure is reduced, there will be no pressure to collect revenue as per the target. During July-December of the current financial year, the growth of revenue was only 4%, which was 8.42% in the same period last year.
In this context, Zahid Hussain said, "Since the government expenditure is less now, the fear of increasing the budget deficit due to revenue deficit will no longer be there."
Outside the banking system, the government borrows the most from the savings certificates.
Although the government had the target to earn Tk20,000 crore from the sale of savings certificates for the current financial year, it has already been achieved in the six months from July to December.
Sales of savings certificates are increasing even though the government does not want it as the interest rate on bank deposits has come down.
Economists believe that this will increase the government interest-bearing expenditure.
The central bank report on the Islamic bond Sukuk said the Bangladesh Government Investment Sukuk was introduced for the first time on 29 December 2020 to raise funds for the project "Safe Water Supply to the Whole Country".
An amount of Tk4,000 crore was issued in December 2020 through five years of Bangladesh Government Investment Sukuk (Ijarah Sukuk).