Tk5,000cr budget allocation for interest payment against stimulus funds

The government is tailoring the upcoming national budget keeping aside a sum of Tk5,000 crore for interest payments against loans under different stimulus packages announced to cushion the economic fallout of Covid-19.

The finance ministry has allocated Tk3,000 crore for paying interests against the soft loans to industry, service and agriculture sectors.

And Tk2,000 crore will be used for interest payment against loans for the last April-May period, said Finance Division officials referring to an order in this regard from the Prime Minister's Office.

The central bank in May suspended interest payments against all loans for the two months in a bid to help businesses during the coronavirus pandemic. The government will pay the postponed bank loan interest on behalf of the borrowers from the Tk2,000 crore fund.

On the other hand, the finance ministry said it would pay interests for two loan stimulus packages announced for industries and services from the Tk3,000 crore allocation.

The government had announced stimulus packages of Tk50,000 crore as working capital assistance to industries and services sectors. The allocation will also meet interest repayment against postponed agricultural loans for the April-June period.

The central bank will pay the banks from the Tk5000 crore subsidy fund meant for interest payments.

Finance Minister AHM Mustafa Kamal will place the national budget for the upcoming fiscal year before the parliament on June 11, with a massive deficit in revenue earnings in the outgoing financial year mostly due to the pandemic.

Businesses were almost shuttered during the two-month public holidays since March 26 in a bid to curb the novel coronavirus spread in Bangladesh.

The Bangladesh Bank formed two separate funds - Tk20,000crore for the small and medium enterprises and Tk30,000 crore for heavy industries and services – to counteract the virus fallout.

The fund for the SMEs offers9 percent interest rate while the borrowers will have to pay 4 percent. The government will pay the rest 5 percent.

For heavy industries and services, borrowers and the government will equally share the 9 percent interest for loans from the central bank fund.

On top of this, the central bank announced a Tk19,500 crore stimulus package for the agriculture secretor. Farmers and agro-entrepreneurs can avail bank loans from the fund from April 1 to June 30, 2021, while they will have to pay 4 percent interest like the SMEs.

The next budget will subsidise the interest payment against agri-loans for April, May and June this year. Interest repayment against agri-loans for the rest 12 months will come from the national budget for the 2021-22 fiscal year, said Finance Division officials.

Finance Division officials who are involved in drafting the national budget said the government has no plan to formulate any fund further in the upcoming budget for the industrial and service sectors. 

The new fiscal year will focus on implementing the already announced around Tk1 lakh crore packages. However, the new budget may have some relaxations on duties, they said preferring anonymity.

"The new budget will have separate extra funds. These will be used if any sector requires immediate help due to the virus crisis," an official said.

Former Bangladesh Bank governor Dr Salehuddin Ahmed believes the budget allocation for the industry and service sectors' loan interest repayment is positive.

"This will encourage bankers to disburse loans under the stimulus packages," he told The Business Standard.

He said, "We are yet to estimate the exact amount of losses in many sectors as the pandemic is continuing. The budget should have measures so that any badly-hit sector can be facilitated if requires."

In the meantime, business leader Shafiul Islam Mohiuddin said the government is fully aware about the financial ordeals of businesses.

"Stimulus packages worth Tk1 lakh crore have already been announced. Moreover, the budget will have measures so that the private sector can shake off the virus fallout," said Mohiuddin, a former president of the Federation of Bangladesh Chambers of Commerce and Industry, and the Bangladesh Garment Manufacturers and Exporters Association.

Moreover, there will be a specific focus on removing obstacles towards the implementation of the stimulus packages, said the businessman,who is also a member of the parliament.