Finance Minister Abul Hassan Mahmood Ali is poised to unveil a monumental Tk 8 trillion (Tk 8.0 lakh crore) national budget for the fiscal year 2024-25 within the hallowed halls of parliament on Thursday, June 6, 2024.
Yet, amidst the grandeur of this fiscal proposition, Minister Ali stands at the precipice of a daunting challenge – the gaping maw of a budget deficit yawns before him, as revenue collection stagnates below anticipated thresholds.
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In his inaugural budget presentation under the current government’s tenure, Minister Ali pledges a delicate balancing act, striving to weave a tapestry of contentment among both the business elite and the common populace.
However, beneath this veneer of reassurance, a tempest brews. Economists, businesses, and ordinary citizens alike harbor deep-seated anxieties, their concerns coalescing around the specter of skyrocketing prices and inflation. Their trepidation finds root in the burgeoning government borrowing and the looming shadow of a dollar crisis that casts its pall over Bangladesh.
Domestic Debt Doubles in Five Years
Sources within the hallowed halls of the Ministry of Finance whisper of staggering figures. A colossal Tk 2.57 trillion (Tk 2.57 lakh crore) shall be raised from both domestic and foreign coffers, a testament to the magnitude of the fiscal feat at hand. Of this, Tk 1.57 trillion (Tk 1.57 lakh crore) shall be drawn from the veins of the domestic economy, with banks standing as willing participants in this financial ballet. The remaining Tk 1 trillion (Tk 1.0 lakh crore) shall flow from foreign channels, a testament to the global interconnectedness of modern economics.
Yet, amidst the cacophony of borrowing, a disquieting revelation emerges. The budget for servicing interest on foreign debts, allocated within the current fiscal year, stands depleted within a mere ten months. A stark illustration of the mounting burden borne by Bangladesh, as foreign debt repayments soar to unprecedented heights, marking a harrowing 108 per cent increase over the past decade.
In a fiscal twist of fate, analysts forewarn of an impending climax in the financial saga of Bangladesh. The fiscal year 2023-24 witnessed a watershed moment as foreign debt repayment eclipsed the formidable $3.0 billion mark for the first time, setting a foreboding precedent for the forthcoming fiscal year of 2024-25.
Stark government statistics paint a sobering picture of the nation’s fiscal landscape. Over the span of a mere five years, domestic debt has burgeoned twofold, while the ominous milestone of $100 billion looms over Bangladesh’s external debt for the first time in history, portending a future fraught with challenges amidst a backdrop of foreign exchange scarcity. Within this labyrinth of debt, the public sector shoulders the lion’s share, with $79.69 billion amassed, leaving the private sector to grapple with the remainder.
$5 Billion in Profits Stuck Abroad
Former IMF Economist Ahsan H Mansur sounds a clarion call of caution, urging a meticulous reassessment of the calculus surrounding foreign-funded projects. Terms, tenure, and interest rates must be scrutinized through the lens of domestic economic exigencies, lest the nation navigate treacherous waters of financial instability.
In this crucible of fiscal uncertainty, Mansur advocates for austerity measures, advocating for a trimming of budget allocations towards extravagant endeavors and a concerted effort to mitigate costs associated with indispensable projects, as the nation endeavors to navigate the tempestuous seas of financial crisis.
Apart from this, due to the ongoing dollar crisis, several foreign companies are having trouble repatriating profits from investments and sales of goods and services. The amount of money stuck is about $5 billion, which is a kind of liability for the country.
Mansur, also executive director of PRI, a research organization, said that there has been a lot of discussion and criticism about the domestic and foreign debt situation for a year or two.
So there should be a statement by the finance minister in the budget speech about how much debt is in which sector, and what is the source of the debt, and what is the repayment plan, he said.
Foreign investors invest by looking at a country’s debt situation, repayment capacity, whether they can take profits from the investment in the country. At present, several foreign companies are faced with various obstacles including the dollar crisis to bring profits to the country, Mansur pointed out.
In terms of government liability, foreign debt repayment is usually discussed more. But to finance the budget, the government borrows a huge amount from internal sources such as banks, savings bonds and other sources. The amount of this debt is also raising concerns. The amount of borrowing from domestic sources has doubled in the last five years. Domestic debt has never grown so fast before, he said.
Treasury Bills and Savings Bonds to Plug Budget Gaps
According to sources in the Ministry of Finance, in the last fiscal year 2019-20, the government took a loan of Tk 787.45 billion (Tk 78745 crore) to meet the budget deficit. After that, the amount of debt only increased every year. In the current fiscal year, a target of taking a loan was set at Tk 1.55 trillion (Tk 1.55 lakh crore).
As per the latest from the finance ministry, so far (as of mid-May) Tk 705.58 billion (Tk 70,558 crore)of loans have been taken from the banking sector. Another Tk 620 billion (Tk 62,000 crore) has been planned to be taken through various types of treasury bills and bonds this June to finance the budget.
Apart from this, Tk 230 billion (Tk 23,000 crore) is expected to be taken this year from the non-banking sector, that is, mainly by selling savings bonds. The government has taken loans from bonds of Tk 112.06 billion (Tk 11,206 crores) so far.
Mainly due to the non-collection of internal revenue, the government has to take loans from banks, financial institutions, and savings bonds to meet the budget deficit. In the first 10 months of the current financial year, the shortfall in revenue collection of the National Board of Revenue (NBR) is over Tk 260 billion (Tk 26,000 crore).
