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Govt allowed to borrow more undernew monetary policy

Businesses may be deprived of funds
Star Business Report
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The central bank yesterday drastically raised the borrowing target for the government from banking sources for this fiscal year to meet its demand for funds in the face of revenue shortfall -- a move that will make it difficult for businesses to get loans.
On January 16, the monetary policy committee of the Bangladesh Bank revised the key monetary and credit programmes, setting a fresh government sector credit growth of 37.7 percent for fiscal 2019-2020 compared with 24.3 percent set in July last year.
The committee took the decision at a meeting presided over by BB Governor Fazle Kabir at the central bank headquarters in Dhaka.
The BB was forced to revise the target of broad money supply to the market to meet the government’s growing borrowing demand from banking sources. Broad money is a category for measuring the amount of money circulating in an economy.
As per the revised monetary policy, the central bank set a 13 percent growth of broad money for the fiscal year, up from its July target of 12.50 percent.
The government overshot its annual limit for bank borrowing in the first half of fiscal 2019-20 due to poor revenue collection.
Between July and December last year, the government borrowed Tk 48,015 crore from banking sources against the annual target of Tk 47,363 crore, BB data showed.
In contrast, Tk 26,446 crore was borrowed from the banking sector in the entire fiscal 2018-2019.
According to a central bank projection, public sector credit growth was 59.6 percent in December against the target of 25.20 percent.
“It is tough to contain year-on-year government sector credit growth to 37.70 percent for fiscal 2019-20 given the ongoing trend of government borrowing,” said Ahsan H Mansur, executive director of the Policy Research Institute.
Public sector credit growth may accelerate further than the revised target set by the central bank.
“The high borrowing is poised to aggravate the already tight liquidity condition in banks and it will ultimately hit the private sector,” said Mansur, also the chairman of Brac Bank and a former official of the International Monetary Fund.
The private sector has been dealing with inadequate credit for months and their woes would worsen due to the increased government borrowing.
The central bank kept unchanged the private sector credit growth at 14.8 percent, which is way higher than the 10 percent it projected in December.
In November last year, private sector credit growth dropped to 9.87 percent, the lowest since 2008, the latest for which data is available.
The central bank has projected that the GDP growth will be close to 8.2 percent this fiscal year, riding on robust growth of inward remittances.
The high growth of remittance will offset the challenges stemming from lower growth in the manufacturing sector amid negative earnings from exports.
Remittance hit an all-time high of $18.32 billion in 2019, much to the relief of the government that has been on edge for the lower foreign exchange earnings from declining export shipments.
The ongoing trade war between the US and China and the recent spates of political unrest in the Middle East have mainly put the country’s export sector under pressure.
But the government will face hurdles in achieving the GDP growth as remittance does not have direct impact on economic expansion.
“Remittance usually gives a boost to the rural economy and it hardly makes the whole economy vibrant,” Mansur said, adding that it takes time to get output from remittance as the funds cannot be invested promptly.
The central bank says it will face some challenges to keep inflation at 5.5 percent because of rising price of edible oil and other commodities in the global market.
But the supply of commodity items in the domestic market has strengthened at a desirable level, which will help the central bank tackle inflation and achieve the target of 5.5 percent for the current fiscal year.
The government will have to turn to banking sources for funds as revenue shortfall widened further as sluggish tax collection persisted.
For example, the National Board of Revenue was Tk 20,220 crore shy of reaching its target of raising Tk 85,317 crore during the July-October period.