More foreign financing to fuel this FY’s budget
The government has planned to increase foreign financing by around 15 percent and reduce bank borrowing by 28 percent in the revised budget for this fiscal year to tame inflation.
In the revised budget, the bank borrowing target has been brought down by 28 percent to Tk 99,000 crore, while the foreign financing target has been bumped up by 15 percent to Tk 109,000 crore, The Daily Star has learnt from finance ministry officials involved with the proceedings.
For all latest news, follow The Daily Star's Google News channel. "If the government can materialise the plan, then it will be good -- the available statistics that we saw so far shows that borrowings from banks increased significantly," said Selim Raihan, executive director of the South Asian Network on Economic Modelling.
If the government wants to implement its plan, it must reduce its bank borrowings significantly in the coming months, he said.
In the first five months of the fiscal year, the government borrowed Tk 25,138 crore from the banking system, according to central bank statistics. A year earlier, it stood at Tk 3,188 crore.
"I doubt how far the target that has been set could be materialised. However, it can be possible since implementation of the annual development programme this time is very low," said Raihan, also a professor at the University of Dhaka's economics department.
If the ADP trend continues, then the government might perhaps be able to cut back on its bank borrowings.
Similarly, Raihan doubted that the target set for foreign financing could be achieved finally.
The government in the budget incorporate foreign financing in two ways. One is project loan and the other is budget support.
The government's project loan utilisation target in the budget was Tk 100,000 crore. Already, the Economic Relations Division have brought it down to Tk 75,000 crore.
This means the government has to achieve a large amount of budget support if it wants to meet the foreign financing target.
To fulfil the foreign financing target by way of budget support, economic reforms have to be sped up such that development partners disburse the funds, Raihan said.
The government is expecting $4 billion in budget support from the World Bank, Asian Development Bank and the International Monetary Fund, according to finance ministry officials.
On the other hand, foreign-funded project utilisation has to be sped up as well although in the first seven months of the fiscal year, it was down 12 percent year-on-year.
After the adjustment, the revised budget for this fiscal year is likely to be Tk 744,000 crore, down 6.65 percent from the original outlay.
The budget deficit has been set at 4 percent and it could end up being lower eventually.
Save for interest payment and subsidy expenditure, the budget spending will be low this time, according to finance ministry officials.
The two overheads though might see an increase in the revised budget.
Over half of the government's total revenue expenditure in the first four months of the fiscal year was on interest payments alone, mainly due to increased borrowing and a rise in interest rates.
The interest payments amounted to Tk 58,494 crore, a year-on-year surge of 84 percent.
Some Tk 113,500 crore has been allocated for interest payment in fiscal 2024-25's budget but the allocation might increase in the revised budget.
Similarly, the allocation for subsidy is Tk 88,015 crore but this could increase since the government has a plan to clear the power sector arrears.
The development spending in the revised budget has been slashed by Tk 49,000 crore to Tk 216,000 crore.
The revised ADP will be finalised next week at a meeting chaired by the planning adviser. It will then be placed at the meeting of the National Economic Council for final approval, said planning ministry officials.
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