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High borrowing fear looms large

Govt receives Tk 2,062cr loans from banks in July against annual target ofTk 2,599cr

Rejaul Karim Byron
Government borrowing from banks may exceed the target set in the budget this fiscal year if the government does not get additional budgetary support from donors.
The embarrassing prospect has prompted Finance and Planning Minister M Saifur Rahman to ask the
World Bank president for fresh credit support.
Nel government borrowing from the banking sector has already increased 10 percent in the first month of this fiscal year.
The government’s net borrowing from banks in July stood al Tk 2,062 crore, the year-on figure of which
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was Tk 649 crore, according to a Bangladesh Bank economic update released in September. The figure is 10 percent bigger than June 2004 and 217 percent the July 2003.
If the trend goes on, it will only widen the budget deficit. A draft aide memoire of the World Bank (WB) and the Asian Development Bank (ADB) warns that the total budget deficit may rise from 3.2 percent of GDP in FY04 to 4.4 percent in FY05.
The government's target is to borrow Tk 2,599 crore from the banks this fiscal year, but government officials doubt if the target is feasible. Sources said apart from committing huge additional resources for the post-flood rehabilitation, the government may well have to spend an extra Tk 1,000 crore on payment of salaries to the government employees under the new pay structure to be effective from January.
No allocation is there in the budget for the purpose.
A joint assessment of the WB and ADB puts the recovery need for the first floods this year at about Tk 6,600 crore. Sources at the finance ministry said the government released some Tk 1,400 crore until the middle of last month for postflood reconstruction.
The Finance Division has allocated Tk 23 crore to the health ministry for buying medicine, Tk 70 crore to agriculture ministry for farm rehabilitation, Tk 30 crore to fisheries and livestock ministry and Tk 3 crore to Department of Public Health Engineering.
It has also allocated Tk 1,200 crore under the maintenance head to different ministries for spending on the post-flood rehabilitation programme.
Finance ministry sources said the Finance Division is receiving demands for more allocation. More demands are likely to be placed soon at the division for repairs of
schools, roads and other infrastructure damaged by the excessive rainfall.
The government will need crores beyond the total budgetary allocation for the rebuilding programme, but donors have made no concrete assistance commitment.
The WB and ADB have hinted at releasing some $300 million for the rehabilitation programme through reallocation of the funds of the projects already in the pipeline. However, the banks stipulate that the funds would have to be spent on the sectors for which they had been allocated.
Sources said the condition has prompted the finance ministry to seek fresh credits in budgetary support. It argues that the government will need the money for maintenance in the end of the year although it is spending the money on the rebuilding programme.
The finance minister earlier announced that the government would take up no new projects, except for the donor-funded ones, unless it is absolutely necessary. But officials at the planning ministry said they are under relentless pressure for taking up new projects and may have to eventually start fresh projects.
"That is why we have asked the World Bank for fresh credits in budgetary support so that we can freely spend the money that the different sectors are in need of wherever necessary," an official at the Economic Relations Division of the finance ministry said, preferring anonymity.
The government placed its arguments at the meeting with the joint mission of the WB and ADB last month. The finance minister also pleaded the case on the sidelines of the annual meeting of the World Bank and the International Monetary Fund in Washington DC early this month.