BANGLADESH

Investment in industries will be disrupted and the inflationary pressure will increase if the government continues taking loans from banks, economists say.

According to latest information of the Bangladesh Bank, the government borrowed Tk 78.92 billion in the first two and a half months of this fiscal, over 20 times more than it did in the same period last year. The central bank contributed Tk 41.02 billion and the commercial banks the remainder.

Over the same period in the last fiscal, the government borrowed Tk 3.61 billion.

Former finance advisor to the caretaker government A B Mirza Azizul Islam said, "The government has to buy fuel oil at a high price to feed the rental power plants. It is facing problem to provide the money and has to borrow from banks to resolve the problem."

According to the Bangladesh Bank, the rate of opening L/Cs (letters of credit) for fuel oil import increased 100 percent in July-September period.

Bangladesh Institute Development Studies (BIDS) director-general Mustafa K Mujeri said, "The government is borrowing money from the banks at an alarming rate. The flow of loans to the private sector will decrease if it continues. Industrialisation in the country will hamper."

Azizul said achieving the targeted seven percent GDP growth will be difficult because industrialists will not get much to borrow.

Both Mujeri and Azizul also were concerned that flow of money into the market will increase because of the government's taking loans from banks, causing inflation to spike even more.

"Prices of essentials will also rise," Azizul said.

Mujeri said, "Opportunities for the private sector to borrow money shrink when the government takes loans from commercial banks. On the other hand, new money hits the market if the government takes loans from the central bank, raising inflation."

The former chief economist of the Bangladesh Bank suggested the government see to it that it does not cross the limit of taking loans.

According to the Bangladesh Bureau of Statistics, inflation was 11.29 percent in August, highest in three years and six months.

The government borrows money from foreign and local sources to finance the budget deficit. The government set a target to borrow Tk 189.57 billion from banks to finance the shortfall in the current fiscal and Tk 156.80 billion in the last fiscal.

On the other hand, foreign loans worth around Tk 186.85 billion are expected in this fiscal: of this amount, Tk 56.27 billion will be spent to paying up loans taken earlier and their interests.

The expected foreign loan in last fiscal was Tk 109.2 billion. Like the last fiscal, the flow of foreign loan is not so good this fiscal.

According to the Economic Relations Division (ERD), most of the foreign loans received in the first two months of the fiscal have been spent on paying past loans and their interests.

Azizul said, "We saw in the past that the government had taken loans from banks to implement annual development programme (ADP). But the rate of implementing ADP is not so good at the start of the fiscal."

According to the latest information given by the planning ministry, only six percent of the Tk 460 billion ADP has been implemented in the first two months of this fiscal.