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Bangladesh - Corporate - 3 weeks ago

Money crisis after dollar: BB report

Nasiruddin Ahmed : The government is facing a cash crisis amid the severe dollar crisis due to the global and domestic economic recession.
Due to the increase in the prices of all kinds of products in the international and domestic markets, the expenditure of the government has increased. In contrast, incomes have not increased, but have decreased.
The government is in a financial crisis as the income does not increase compared to the expenditure. The government was facing a cash crunch due to low revenue from the Corona period. At that time, the government paid off the revenue deficit by borrowing. Now there is a debt crisis along with revenue shortfall. There is not enough money in the bank to lend. As a result, the government’s money crisis has increased.
According to the report of the central bank, there was an economic recession before the corona virus. At that time too, the revenue was not as per the target. Corona infection increased in the country from March 2020. Due to this there was a long lockdown.
Economic activity was disrupted at that time. Due to which revenue collection has also decreased. The revenue target for the National Board of Revenue (NBR) and non-NBR sectors in the financial year 2019-20 was Tk 3 lakh 14 thousand crores. Tk 2 lakh 30 thousand crore were collected.
After that, the target of revenue collection in the financial year 2020-21 was Tk 3 lakh 16 thousand crores. Tk 2 lakh 65 thousand crore were collected. The target for the financial year 2021-22 was Tk 3 lakh 46 thousand crores. Tk 3 lakh 9 thousand crore were collected.
In the last financial year, the target was Tk 3 lakh 88 thousand crores. Tk 3 lakh 39 thousand crore were collected. Every year there was a shortfall in revenue collection. The deficit was met through spending cuts and borrowing from banks.
In July-November of the last financial year, there was a growth of 14 and a half percent in revenue collection compared to the previous financial year. In the same period of the current financial year, the growth has been 13.5 percent. The growth rate fell by 1 percent. At that time the target was Tk 1 lakh 52 thousand crores. Tk 1 lakh 36 thousand crores have been collected. The deficit is Tk 16 thousand crores.
If there is a shortfall in revenue, the government borrows the money. But now the government’s debt door has narrowed. That’s why they are not getting loans like before. As a result, the government’s money crisis has become evident. The government borrows most from commercial banks.
Liquidity crisis increased due to dollar crisis and reduced deposit flow in commercial banks. This has made it difficult for banks to provide large loans to the government. Because if the government borrows more from banks, the debt crisis in the private sector will increase.
This may hinder the development of the private sector and disrupt economic activities. Due to this, the government reduced borrowing from commercial banks.
Borrowing money from the central bank is also one of the sources of government. By printing money from the central bank and taking loans, the rate of inflation increases. Meanwhile, the inflation rate has increased due to central bank loans. To control this rate, borrowing from the central bank is stopped.
Even though the government took huge loans earlier by selling savings bonds, it is not able to take them anymore. It has high interest rates and the IMF has asked to reduce borrowing from the sector. All these together, the government’s debt has narrowed from all sectors. While there is an opportunity to borrow from the bond market, it is still underdeveloped.
The participation of corporate institutions other than banks and financial institutions has not yet increased in this market. Besides, due to the contractionary monetary policy, the interest rate in this sector has also increased to over 11 percent. As a result, there is a cash crisis in this sector and high interest rates on the other. In both of these, the supply of loans from this sector is less. As a result, the revenue deficit cannot be met by borrowing money.
At the same time, as loans from foreign sources have also decreased, grants have also decreased. As a result, the flow of money to the foreign sector has decreased. The money crisis has become more evident. Due to the dollar crisis, the government has scaled back projects that require foreign funding since mid-2022. Now the credit crunch has also reduced the work of many projects. As a result, the government is pursuing a policy of austerity spending in rupees as well as in dollars.
From the report, it can be seen that in the fiscal year 2020-21, the government borrowed a record amount of Tk 42 thousand crores by selling savings bonds. Sales in this sector were reduced from FY 2021-22. At the same time, due to increase in commodity prices, people’s ability to invest also decreases. As a result, the government’s net debt from savings bonds decreased to Tk 20,000 crore in that year.
The sale of savings bonds has to be reduced further since the last financial year due to IMF conditions. As a result, the government could not take new net loans from this sector in the last financial year. On the contrary, it has paid off the debt of savings bonds by taking loans from other sectors.
Earlier, from the sale of savings bonds, more money was left over to pay off the previous debts of the customers. They were added as new loans to the government. But due to the low sale of savings bonds, this sector did not take any new loan but paid off the previous loan of Tk 3,295 crore in the last financial year.
Tk 6,063 crore has been paid in July-November of the current financial year. Which is more than twice as compared to the same period of last financial year. Tk 3107 crore was paid during the same period of the last financial year. The previous liabilities of this sector are being paid off by borrowing from other sectors.
In July-December last financial year, the government took a loan of Tk 51 thousand crore from the central bank. In the same period of the current financial year, it paid off Tk 34,108 crores from the previous loans without taking new loans. During the last financial year, the government had taken a loan of Tk 14,300 crores from internal sources. Tk 18,157 crore has been paid from the previous loan status during the same period of the current financial year. Of this, Tk 11,756 crore were taken from the bank sector in July-December of the last financial year.
Tk 24,305 crores has been paid from the previous loan status during the same period of the current financial year. Tk 25,545 crores were taken from the non-bank sector during that period of the last financial year. Tk 6,148 crore taken in the current financial year. Tk 17,577 crores were taken from the foreign sector during the discussion period of the last financial year.
In the current fiscal year, Tk 12,218 crores were taken at that time. The net financing of the domestic and foreign sectors in the last financial year was Tk 31,879 crores. At that time of the current financial year, the deficit was Tk 5,939 crores.
Donations fell by 23.79 percent in July-November last financial year. It has decreased by 40 percent during the same period of the current financial year.
Meanwhile, due to the dollar crisis, the payment of foreign loan installments of various government agencies is being disrupted. For the same reason, the import of the government sector is also being hampered. A large part of the foreign exchange coming in through remittances is spent on the import of essential goods of the public sector. This includes fuel oil, gas, raw materials for development projects.

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