Interest payment main challenge

UNB: The government’s payment on interest for loans will increase in the coming days despite reducing the rate of interest on borrowings, according to an official document.
The government has to pay some Tk 775.5 billion for interest payment in the coming 2022-23 fiscal which is 11.8 per cent of the total budget, says the document.
The overall interest rate will be 5.1 per cent for the next fiscal, down from 5.3 per cent in the running FY2021-22.
The document says that some Tk 698 billion will be given as interest for the loans taken from the domestic sources while Tk 77.6 per cent for the external sources.
The amount of interest payment has been projected at Tk 881.6 billion for the FY2023-24, which is 11.8 per cent of the total budget with 5 per cent interest rate.
The document mentions that some Tk 794.3 billion will be paid as interest for the loans taken from the domestic sources while Tk 87.3 per cent for the external sources.
For the running FY2021-22 the government has earmarked Tk 685.9 crore as interest payment, which is 11.4 per cent of the total budget and the overall interest rate is 5.3 per cent.
Some Tk 620 billion will be given as interest for the loans taken from the domestic sources while Tk 65.9 per cent for the external sources.
According to the official document, Bangladesh has managed to keep overall cost of financing low in the past as the country enjoyed a significant share of total financing from external sources at a concessional rate.
The share of external interest payments was only 0.9 per cent of thegovernment’s total expenditure and with that the average implicit interest rate of external financing was 1.1 per cent in the last five years from FY2015-16 to FY2019-20.
However, rising share of loans in the external financing has slightly raised the external interest expenses.
On the other hand, domestic interest payments has been the predominant part of the total interest expenses as the government often has relied on expensive non-bank borrowing to meet its financing requirements in the recent past.
Domestic interest expenses accounted for 12.44 per cent (on average) of the government’s total expenditure and average implicit interest rate of domestic financing was 9.42 per cent in the last five years.
The revised interest payment for last FY2020-21 was Tk 638.2 billion while it was Tk 583.1 billion, Tk 494.6 billion, Tk 417.7 billion, Tk 353.8 billion and Tk 331.1 billion in the financial years of 2019-20, 2018-19 fiscal, 2017-18 fiscal, 2016-17 fiscal and 2015-16 fiscal respectively.

The government has projected to reduce the budget deficit to 5.7 per cent of the GDP in the next FY2022-23 from existing 6.2 per cent.

The budget deficit for the 2023-24 fiscal has been projected at 5.5 per cent.

The revised deficit in fiscal 2020-21 was 6.1 per cent while it was 6 per cent in the budget. The deficit for the 2019-20 fiscal was 5.3 per cent.

According to the official document, government has been seeking for additional funds from the multilateral/ bilateral development partners to implement its declared fiscal stimulus package worth Tk 1.28 trillion (4.2 per cent of the Nominal GDP in FY21) since the pandemic hit the economy in March 2020.

The government’s financing requirement has been projected at Tk. 2.1 trillion (6.2 per cent of GDP) in fiscal 2021-22 fiscal.