The government is defaulting on payment of interests and principal of its bonds issued to financial institutions and corporate houses at a time when liquidity crisis has hit the banking sector, according to banking circle.

The government had issued about Taka 900 crore National Investment Bonds (NIB) in 1993 for funding some priority projects' and another Taka 600 crore bonds in 1994 for installation of digital telephone lines.

According to a Finance Ministry source, the present situation arose out of an "unplanned national budget" for fiscal 1995-96 which did not keep provisions for payment of the principal and interests against the bonds.

Now the government is trying to overcome the situation by making payments provision in the revised budget

and the situation should be under control" by this month said a high official of the ministry.

But as the time for payment of interests came, the government failed to pay the amount to the tune of about Taka 40 crore accrued on the bonds issued for funding the T & T project, he said.

The rate of interest on the T & T bonds was five per cent. Another Taka 159 crore bonds were floated for funding the T & T project during the first quarter of this year but it was reported that nobody subscribed those because of low rate of interest and non-payment of past interests.

Following persuasion by the Central bank, the ministry is now thinking of issuing more bonds for about Taka 40 crore to pay the interests.

When contacted an official of the T & T Board said that

interests could nOt be paid as there was no provision In the budget for that.

The government has also not paid the principal and interest amounts on three years’ NIBs which have already matured. The rest of the NIBs are scheduled to mature by June 15.

These bonds, bearing 10 per cent annual interest were issued during 1993 when the call money rate was 2-4 per cent.

Now the call money rate has reached 24 per cent and the situation has deteriorated since the financial institutions are not getting their money back in time.

There is even a talk of compulsorily roll-over of 50 per cent of the principal amount of the bonds for further three years at 7.5 per cent yield at a time when the 3 years' fixed deposit rate is more than 8.5 per cent and the government itself is offering 9.5 per cent on various savings certificates

When asked for his com ment the finance ministry official said issuance of bonds is a usual for the government. However. he did not confirm the toll-over of the 50 per cent NIB funds.

Bankers are now concerned at the non-payment of the principal and accrued interests in time as well as delay in payment of interests against the T&T bonds.

"It speaks of total mismanagement ot government bonds and reflects weakness of the government regarding debt management, said the Manav tng Director of a private bank "If it continues the country s risk rating among the Interna tionrf) Investors will go down and tell upon the overall tnrat on government Issued Instiu ments