Fertilizer-electricity liability to be paid by issuing bonds

Enayet Karim: Due to the cash crunch, the government has taken the initiative to meet the subsidy liability of fertilizers and private sector power plants through bonds. The Ministry of Finance has already sent a letter to the Ministry of Industry and the Power Department seeking to know the amount of bank loans owed by Bangladesh Chemical Industries Corporation (BCIC) and power plants regarding the import of fertilizers. According to related sources, it will be paid by issuing bonds equal to the bank loan.
BCIC owes Tk 8,000 crore to the government till last June for fertilizer subsidy. In the six months of the current financial year till December, some more arrears of subsidy have been added. Due to not being able to pay the money on time, the amount of defaulted loans of the company in four government banks has stood at Tk 3,167 crores.
Because of this, banks do not want to open new LCs for importing urea fertilizers. BCIC is sending letters repeatedly to get money. But because the government does not have enough cash, it is not possible to release the money. In this situation, it has been decided to issue a special bond of the same amount filed by the bank to protect the company from defaulting loans. In this case, not the total subsidy, but if the administrative ministry of BCIC determines the liability of the bank, that amount of bond will be issued.
On the other hand, private power generation plant owners owe the government more than $2 billion, which is about Tk 23,000 crores, for electricity prices. Bangladesh Independent Power Producers Association (BIPPA), the organization of the entrepreneurs of this sector, is not able to give this amount of money. Therefore, an initiative has been taken to repay the liability through a special bond issue. However, not the entire amount due but the amount of liability standing in the banks of the member power plants of BIPPA, the bond amount will be given.
A senior official of the Ministry of Finance, who did not want to be named in this regard, said that special bonds will be given directly from the Ministry of Finance in favor of the respective banks. Banks will be able to save their CRR-SLR along with getting fixed rate of interest against that bond. He also said that there are precedents for issuing special bonds against government filings. About 20 years ago, a special treasury bond was issued in favor of the bank against the Bangladesh Petroleum Corporation (BPC). However, such bonds do not solve the bank’s liquidity problems. Because the bank does not receive cash through it. Instead, the bank receives an asset, which is guaranteed by the government. Initially the bond issue was not considered as SLR of the bank. Later it was incorporated into SLR.
The finance ministry says that if special bonds are considered as SLR, the bank’s loan disbursement capacity will increase. Because in this case the amount of money that banks had to invest in government securities to save SLR, in case of special bonds, the equivalent amount of the bond will be deducted. As a result, the bank can invest this money in other sectors.
It is known that due to the Russia-Ukraine war, the demand for subsidies in other sectors including electricity has increased due to the abnormal increase in the price of energy in the world market. At the same time, the government’s debt liability has also increased due to the devaluation of the currency. Meanwhile, due to the election, various ministries are demanding additional allocation by showing logical reasons. But compared to that, the revenue of the government is not getting. Due to this, there is a shortage of cash in the government treasury.
Research director of private research organization PRI MA Razzak said that this situation has arisen due to structural problems in the country’s economy for a long time. Due to the inability to increase the revenue, the desired expenditure of the government was not possible. In many cases, unnecessary projects have been implemented with domestic and foreign loans. These long-term problems have complicated the current economic situation. Now the government has to do something. Therefore, an initiative is being taken to release bonds on the pattern of providing life support to pay off liabilities. But these initiatives will not be effective in the current situation.
He further said that the government has to reduce expenditure in the current changing situation due to related reasons. But there is no alternative to raising revenue to cover necessary expenditure. Meanwhile, there is a slowdown in the economy due to various reasons including import controls. It is not easy to increase revenue in this situation. The transition from this state of economy requires major reforms in the economy. But no such initiative is visible.
In the budget of the current financial year 2023-24, there is an allocation of Tk 1 lakh 10 thousand 987 crores for subsidy. According to the information of the Ministry of Finance, in the fiscal year 2022-23, the government has given subsidies of Tk 42,893 crores to the power sector, Tk 6,232 crores to the energy sector, Tk 26,055 crores to the agriculture sector and Tk 25,766 crores to the whole.
The government’s financial crisis is increasing due to non-receipt of revenue as per the target. The government is trying to overcome this crisis through spending cuts. Although so far this effort has not been successful. According to National Board of Revenue (NBR) data, the shortfall in revenue collection in the first five months of the fiscal year till November stood at around Tk 16,000 crore.
In the fiscal year 2022-23, the revenue deficit of the government was more than Tk 44 thousand crore. To fund the budget deficit, the government is taking loans from domestic and foreign sources at high interest rates. In the meantime, the interest rate on 91-day treasury bills has risen to 11 percent. Interest rates on longer term treasury bills and bonds have gone up to 12 percent.