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Govt’s overreliance on banks will create disorder in financial sector

Experts say in post-budget discussion at Dhaka University
STAR BUSINESS REPORT
The government’s overdependence on the banking sector to finance its budget deficit will affect the financial sector as well as hurt private sector investment and employment generation, according to experts.
“Again, like every year, the government’s overdependence on the banking sector to finance the budget deficit will create chaos in the financial sector,” said M Abu Yusuf, director of the Centre on Budget and Policy at the University of Dhaka.
The centre organised the event on the campus premises.
While presenting a keynote paper, titled “Review of Proposed Budget 2024-25: Macroeconomic Reintegration, Education and Employment”, he said the deficit in this year’s budget stood at Tk 256,000 crore, which is 4.6 percent of the GDP.
To finance the budget deficit, the government has set a domestic loan target of Tk 160,900 crore, of which Tk 127,200 crore will come from the banking sector, he said.
However, if the budget deficit is financed by money collected from savings certificates or pension schemes, it will provide financial security to the middle class and provide safe credit facilities for the government, Yusuf added.
Although inflation is above 9 percent, food inflation is about 15 percent to 18 percent, he said.
“Reducing the double-digit inflation rate will be the biggest challenge for the government. It is having a direct impact on people’s lives and causing social and political instability.”
Yusuf added that some more measures could have been taken to tackle inflation.
The social and financial impact of inflation could have been controlled by reducing the size of the budget and lowering the value-added tax (VAT) and import duties on various commodities as an emergency measure, he said.
Moreover, the income tax ceiling could have been increased to give some relief to people from lower and middle-income backgrounds.
He added that 14 percent of the budget would be spent on interest payments, almost equal to the total allocations for the education and health sectors.
“This is a matter of concern for us as our reserves have dwindled a lot,” he observed.
Former planning minister MA Mannan, Dhaka University Vice-Chancellor Prof ASM Maksud Kamal, and Research and Policy Integration for Development Chairman MA Razzaque were among others who spoke at the event.

Budget missing reform guidelines for ‘Smart Bangladesh’

Says International Business Forum of Bangladesh
STAR BUSINESS REPORT
The proposed national budget for fiscal year 2024-25 does not contain any guideline on the many anticipated reforms for the realisation of the “Smart Bangladesh” vision, said the International Business Forum of Bangladesh (IBFB) yesterday.
“The country’s economy is going through a transitional period. That’s why reforms are needed for the sake of the country and businesses,” said the research and advocacy platform.
At a media briefing on its premises in the capital over its analysis of the budget, the IBFB said the inflation target was set at 6.5 percent but just last month it stood at 9.89 percent.
“We see that reining in inflation to attain the target will be a huge challenge. Rising inflation must be reined in. If not, common people will suffer even more,” said IBFB President Humayun Rashid.
Excessive government borrowing from the banking system was hindering the flow of credit to the private sector, which may adversely affect investment and employment, he said. The budget deficit stands at Tk 2,56,000 crore, which is 4.6 percent of the GDP. However, it is 5.2 percent in the current fiscal year, he said.
To meet the upcoming fiscal year’s deficit, the government will have to secure Tk 1,60,900 crore from internal sources. Out of this, Tk 1,37,500 crore should be availed from the banking system, he added.
To meet the budget deficit, the management units of banks also need to reduce non-performing loans, he added.
Rashid said instead of depending on the local banking system, attention can be paid to cautiously securing financing from foreign sources at the lowest possible interest rates.
Muhammad Abdul Mazid, adviser of the IBFB, said the opportunity to legalise undisclosed wealth with no questions being asked upon payment of a 15 percent tax would discourage compliant taxpayers.
It is not right to provide such an opportunity, he said.
Mazid said it is not possible to take every step necessary for the development of businesses within one year. Businesspeople should understand that too and act accordingly, he said.
Hafizur Rahman Khan, chairman of Runner Group, was present at the event.