Shawdesh Desk:

The government is likely to make a cautious projection on the availability of foreign funds to meet the budget deficit worth 5.2 per cent of the Tk 50.06 lakh crore projected gross domestic product in the new national budget.

Finance Division officials said that they might project some Tk 1,06,000 crore foreign loan accounting for about 13 per cent of the Tk 7,61,781 crore provisional new budget outlay in  FY24.

This year’s overseas borrowing projection is still about 10 per cent higher than the original projection of Tk 95,458 crore in the outgoing national budget, they said.

The officials added that the government was selective about overseas loans in the crucial election year as failures in the realisation of the projected loan might cause problems to the maintenance of fiscal balance.

According to economists, the reliance on borrowing from the local banking sector would go up because of the cautious approach towards overseas credit.

They, however, said that the release of loans from overseas lenders was often linked with the implementation of conditions, many of which are difficult to go by.

Referring to conditions of the $4.7 billion credit committed by the International Monetary Fund over the next three years, they said that some conditions, including revenue mobilization, were difficult.

The release of IMF loan is likely to be critical in the coming year, said Policy Research Institute executive director Ahsan H Mansur.

On May 1, the World Bank committed $2.25 billion loan assistance for the implementation of five projects over the next three years.

However, the loan agreements carried conditions like a timely approval process of project to prevent delay in the execution, said finance ministry officials.

The officials said that the government would heavily rely on borrowing from local sources to meet the budget deficit of about Tk 2.62 lakh crore.

Of the borrowing, some Tk 1.32 lakh crore would be taken from the banking channel, 24 per cent higher than the original projection in the outgoing budget.

Economists said that the projection of bank borrowing to meet the new budget deficit was a big one.

They observed that such a rate would have adverse impacts on the economy, including causing scarcity of loans for the private sector.

In the outgoing FY23, the private sector credit growth has been unsatisfactory.

The private sector credit growth dropped to 12.62 per cent in January 2023 from 12.89 per cent in December 2022 due to the liquidity stress and an unfavourable business environment resulting from the ongoing economic crisis in the country.

Former Bangladesh Bank governor Salehuddin Ahmed said that the government should enhance non-bank borrowing to meet the budget deficit.

‘Saving certificates are a good option for the government,’ he said.

Finance ministry officials said that the target of selling saving certificates would be around Tk 23,000 crore, compared with the target of Tk 35,000 crore in the outgoing financial year.

The IMF has prescribed a condition for reducing the volume of saving certificates sale as part of its loan package for Bangladesh as the interest payment for saving certificate is high, they said.

The officials said that at least half a dozen conditions would have to be implemented within this year under the IMF loan programme.

Among them, a periodic formula-based price adjustment mechanism for petroleum products has to be introduced by December 2023.

Finance minister AHM Mustafa Kamal is scheduled to announce the new national budget in the parliament on June 1, projecting a 7.5 per cent GDP growth and 6.5 per cent inflation.

The overall revenue collection target may be fixed at Tk 5.0 lakh crore with the National Board of Revenue likely to be given the target of Tk 4.30 lakh crore.