REJAUL KARIM BYRON

The government is set to move away from its reliance on domestic borrowing to fund the budget deficit next fiscal year and go for foreign borrowing in a bid to free up resources for the private sector and contain inflationary pressures.

According to the draft budget plan, the overall deficit has been projected at Tk 2,35,000 crore, which is 3.4 percent of GDP and 17.5 percent higher than the revised target for this fiscal year.

The outgoing fiscal year’s deficit target stands at Tk 2,00,000 crore. The government borrowed Tk 1,37,000 crore from domestic sources and Tk 58,000 crore from abroad. About Tk 5,000 crore were grants.

The draft plan for next fiscal year says that net domestic borrowing is expected to fall by 13 percent to Tk 1,19,000 crore, with bank borrowing cut by more than 15 percent to Tk 1,00,000 crore. Net foreign borrowing is projected to surge by over 91 percent to Tk 1,11,000 crore. The remaining Tk 5,000 crore would come from grants.

This marks a departure from the medium-term macroeconomic policy statement prepared during the interim government, which had stressed a mixed financing strategy with greater reliance on treasury bonds.

That statement also warned of rising foreign interest rates and currency risks, suggesting domestic borrowing would remain the safer option.

The move aims to revive private investment, which has slumped in recent years, said finance ministry officials involved in the proceedings.

In March, private sector credit growth, which is a barometer of the private investment scenario, hit an all-time low of 4.72 percent, according to data from the Bangladesh Bank.

Earlier this week, BB rolled out a Tk 60,000 crore stimulus package, with about Tk 40,000 crore coming from the banks’ excess liquidity. Reducing government borrowing from banks is seen as essential to supporting this move.

To boost foreign borrowing, ministries have been instructed to expedite disbursement of funds already in the pipeline and repurpose funds for slow-moving projects. Officials also expect significant budget support next year, with the possibility of securing over $1 billion annually from the International Monetary Fund if a new programme can be negotiated.

Zahid Hussain, former lead economist of the World Bank’s Dhaka, cautioned against relying too much on foreign borrowing for funding the budget deficit.

“The issue is how much you can actually get -- the projection of more than Tk 1,00,000 crore is challenging,” he said, adding that at best Bangladesh might secure Tk 80,000–90,000 crore, provided pipeline funds are released.

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