The Financial Express
Swasti Lankabangla Swasti Lankabangla

To borrow or not to borrow

To borrow or not to borrow

Bangladesh has a good record when it comes to paying interest and the capital it borrows from international organisations resulting in good credit ratings. That may not be the case internally. A hike from 5 to 10 per cent on interest in bond yields in the fiscal budget has shown sharp withdrawals and has seen their sales drop by nearly half year to year. While this saves higher interest payouts, it pushes increased borrowing from the banks so much so that within a months and a half it has already borrowed the first half of the fiscal quota amounting to Tk 237 billion compared to Tk 265.46 billion in six months of the last fiscal. With the National Board of Revenue (NBR) collections up over in the year before, it's short in projected targeted point to point. This year's figures haven't been made available yet and so the government now has to look beyond the borders for money. It is highly unlikely that the NBR will be able to meet its target because it almost never has. The fear of economists is that loans by the private sector will reduce because of the liquidity situation.

Bank borrowings had been low in recent years, indeed it repaid more than it borrowed in some years. But the burgeoning costs of the mega projects have led borrowing to Tk 1.31 trillion.

Economists have been arguing for foreign borrowings because they are essentially against bond sales and the interest issue and also wary that borrowing from banks will discourage private sector investments.

Mere borrowing isn't going to help either. Most of the Annual Development Programme (ADP) money was left unutilised because officials found the accountability and processing elements too demanding. Moreover, having used its quota of $4.2 billion concessionary loans from the International Development Agency (IDA), it has to ask for the World Bank for loans that carry an interest of 3.0 per cent and another 0.50 per cent in services. The IDA interests were 2.0 per cent. These new loans will come under the scanner of  accountability and close monitoring of the projects where the money is deployed. The World Bank is also questioning borrowing from banks. It has pointed out what this scribe has repeatedly said -- world trade balance is shifting and alternative markets have to be found for exports. While allocating GDP (gross domestic product) numbers, it is suggesting lower growth numbers --7.2 per cent instead of 8.2 per cent. The bank has suggested a sustained move towards high-productivity economy through improving skilled manpower putting the onus on working on technical and vocational skills. The bank also questioned the quality of expenditure on the mega projects as well as the ADP.

Much of the Bank's comments are negative. It says that the benefits of the trade war will provide limited benefits and the recession in Europe and US exports as well as the unsettling situation in the Middle East will impact exports and remittances. In such a situation more borrowing from the local banks may lead to fiscal demise.

As reported in the media, the World Bank has agreed $500 million for private investment and digital entrepreneurship projects, $175 million for the western economic corridor and regional enhancement project, $300 million for Bangladeshi integrated digital project, $120 million for climate smart agricultural water management project, $475 million for Dhaka Public Transport improvement system and $300 million for the upscaling of Dhaka Sanitation Improvement Project.

The projects to be supported are the ones the Prime Minister has been talking about. Providing every village with township facilities, improving Dhaka's sanitation and the Dhaka public transport system are all subjects that often feature in her speeches. It would now appear that the World Bank is fighting back the lump of having declined to fund the Padma bridge. The Prime Minister didn't budge and found the resources internally. Whether she can find ways of financing from other sources remains to be seen. For now, she has the upper hand and might be looking at an austerity drive once the current drives against corruption and internal housekeeping are over.



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