Nonbank line in deficit financing fuels public debt burden

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Offline Rozina Akter

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Nonbank line in deficit financing fuels public debt burden
« on: June 30, 2016, 04:29:16 PM »
The use of nonbank sources for deficit financing by the government fuels public debt burden as it involves higher interest payments that imply a fiscal risk too, experts at a programme said Wednesday.

They said the government is borrowing at least 5.0 percentage points higher rates from the nonbanking sources like savings certificates while it can borrow from banking sources at 6.0 per cent.

Some of the participants at the programme expressed their surprise at the claim that 90 per cent of the annual development programme has been executed in the outgoing financial year despite the pace having been too slow until few months back.

Their observations came at an open discussion on the State of Bangladesh Economy: Budget FY 2017 and Looming Challenges, organised by the Board of Investment (BoI) at its headquarters in the city. BoI executive chairman Dr SA Samad moderated the discussions. 

Chief economist at the Bangladesh Bank Dr Biru Paksha Paul presented the keynote while former secretary Waliul Islam joined the programme as chief guest.

While presenting the keynote paper, Dr Paul said there is need for increasing the use of banking resources for deficit financing and reducing the nonbank line of deficit financing.

He noted that the government has no extensive pension plan for the poor and it (nonbank borrowing) is helping them.

But he said he was not sure whether only the poor or elderly people held the savings certificates as a protection.

On the globally-discussed issue like Brexit, the BB chief economist was of the opinion that the outcome of the referendum on Britain's exit from the European Union wouldn't affect the Bangladesh economy as it is sound now.

He said the nature of the local readymade garments to the United Kingdom is 'inelastic' so it could be affected.

He said Bangladesh's reserves kept with the pound have less than 4.0 per cent exposure so the central bank is not worried about it.

"We'll worry at a time when the US dollar will fluctuate as Bangladesh has 82 per cent reserve holding with the dollar," Dr Paul said.

He said the pound sterling collapse seems to be temporary and Bangladesh will not convert it right now.

The central bank's chief economist in his paper said raising investment-GDP ratio is a challenge for attaining the 7.2 per cent economic growth.

He said savings rate catching investment rate implies investment rising.

Speaking as chief guest former secretary Waliul Islam said the gap of corporate taxes between the listed and non-listed should be widened in order to attract the non-listed firms to the market.

He observed that the long procedures and other complexities in submission of taxes should be simplified to attract more taxpayers.

He also noted that the country has a big challenge to hire 2.1 million youths who join the job market each year.

Speaking at the function Dr SA Samad said Bangladesh's budget is not big compared with that of other countries.

He said: "Our budget size is just 17.4 per cent in terms of GDP while it is 40 per cent in the USA."
Rozina Akter
Assistant Professor
Department Of Business Administration

Offline Nurul Mohammad Zayed

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Re: Nonbank line in deficit financing fuels public debt burden
« Reply #1 on: July 02, 2016, 02:28:27 AM »
Please give us some ideas about financial inclusion.
Nurul Mohammad Zayed
Assistant Professor & Head
Department of Real Estate
Faculty of Business & Economics
Daffodil International University

Offline Showrav.Yazdani

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Re: Nonbank line in deficit financing fuels public debt burden
« Reply #2 on: July 02, 2016, 11:40:59 AM »
Thanks for sharing.
D. G. Y. Showrav