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To offset bad debts of SOEs

Tk 15b repaid to banks thru’ resource transfer

By Inam Ahmed
The government has been ’ retiring its debt to the banks during the past two years by transferring resources from the private sector to the banking sector.
This resource transfer is mainly aimed at offsetting the debts of the perennially lossmaking state owned enterprises (SOE). But for this. the government had to pay a high price by paying between 12 and 18 per cent as interest to the public for borrowing their money through different savings Instruments.
In the last two fiscal years, Taka 14.9 billion was repaid tb the banks which the World Bank(WB) in a recent report — "From Stabilization to Growth" — has dubbed 'surprising and under the circumstances undesirable'.
The Bank has observed that Inability to implement the Annual Development Progra-mme(ADP) and increased* borrowings from the "non-bank public" have given the government scope to adopt such resource transferring
measures.
Tlie Inability to implement the ADP projects fully has led to a lower than expected deficit and this shortfall has not been offset by a one for -one fall tn aid disbursement", the report said.
But if the ADP had been Implemented as planned in the revised target, the budgetary deficit would have been around Tk 5 billion higher
On the other hand, the gov ernment's borrowing from "non bank public" grew three times to Tk 117 billion in FY '93 from Its level the previous year, although it did not need the additional financing. For this borrowing, the govern ment had to bear interest rates of 12.75 to .18 per cent when the commercial banks were • paying between five and I 1 per cent on fixed-term deposits.
When approached for comments. a spokesman of the Metropolitan Chamber of Commerce and Industry (MCCI) told The Daily Star that by doing such exercises, the government was breaching fis cal discipline and transparency which It had promised since coming to power.
The MCCI spokesman also said, this is a loosing exercise in the sense that the indebtedness of the SOEs cannot be minimised without major structural changes mainly through privatisation.,
"Such measures Involve diversion of development resources to non-productive ex penditures." he said adding that in other words, the implementation of the ADP is affected due to resource constraints as funds are diverted elsewhere. This also has an impact on the money and capital markets in the sense the government has been borrowing from the public at rates higher than that offered by commercial banks."
Similarly, lending to the
government at higher Interest rates denies the stock market of public savings coming Into corporate shares, the MCCI pointed out. This transferring of resources from the private .soctor to the banking system is "problematic because the banks are unable to recycle these resources Into new loans to finance private, productive activities." the World Bank ob served ,
The lending rates of the banks remained high partly because the high rates paid on savings certificates have pre eluded a major decline in deposit rates paid by banks. The World Bank felt the government should bring down the interest rates on savings certificates to solve the problems of the banking system.