The government will in no way be able to keep its borrowing within the revised target set in the monetary policy as the public sector credit growth has already exceeded the ceiling by a big margn.
The Bangladesh Bank has revised up monetary target for the public sector credit growth for the current fiscal year amid a rising government borrowing from the banking system.
The new ceiling for the public sector credit growth has been set at 37.7 percent for the fiscal year ending in June, up from the previous target of 24.3 percent.
The government has already borrowed from the last year's stock that has already pushed its credit growth above 51%. This means the government has to repay the excess amount of money it took from banks, which is not at all possible given the present trend in public spending and the lackluster performance in revenue collection.
In fact, the government may have to go for more borrowing from the banking system during the rest of the fiscal year to finance the ongoing huge development projects.
Since the foreign aided projects are already funded, there is little or no scope to borrow further from external sources on easy terms. To meet the spending from the local component of project costs, raising revenue income is a must. Otherwise, project implementation will be delayed.
If revenue performance remains as dismal as it is now, the government will be left with no option but to borrow more from banks, further squeezing credit flow to the private sector.
The central bank has kept the private sector credit growth target unchanged at 14.8 percent, while the actual private sector credit growth has dipped to its lowest in recent history at 9.83 percent by November.
Dr. Ahsan H. Mansur is the Executive Director, Policy Research Institute.