Govt's bank borrowing up ADP falls far short of implementation target

The government's borrowing from the banking system in the last fiscal
year was 3 percent higher than its target although the
implementation of annual development programme (ADP) is lagging far
behind the target. The revised ADP size was Tk 23 ,000 crore last
fiscal year. In the revised budget for FY 2008-09 the government's
borrowing target was Tk 10 ,698 crore. But finally the government
borrowedz Tk 10 ,964 crore. In the current fiscal year (2009- 10) a
bigger borrowing target has been set at Tk 16 ,755 crore, which is
about 56 percent higher than previous fiscal year's target. Data on
ADP implementation until June has not been available yet. However
ADP implementation was Tk 14 ,088 crore in 11 months until May.
The government would have to spend Tk 8 ,912 crore in one month to
implement the full size of the ADP. In the 11- month period the
government on an average implemented ADP of Tk 1 ,280 crore. So it
is impossible to spend Tk 8 ,912 crore in one month, said planning
ministry officials. The government can at best implement Tk 4 ,000
crore to 5000 crore, they added. Although the government is lagging
behind the ADP implementation target by about Tk 4 ,000 crore, it has
exceeded the borrowing target. Finance ministry officials said
revenue income was lower and foreign assistance might not be
available as per target that increased the borrowing. The National
Board of Revenue's (NBR) target for revenue income was Tk 53 , 000
crore. NBR high officials said they would be able to achieve 99
percent of the target, meaning that there might be Tk 500 crore to
Tk 1 ,000 crore deficit against the revised target. As the
government's borrowing increased, its expenditure on payment of
interest went up. The government's total outstanding domestic
borrowing was Tk 105 ,039 crore until April. This year 19.2 percent
of the revenue budget would be spent on payment of interest. In the
current fiscal year the amount to be spent for interest payment has
been estimated at Tk 15 ,808 crore. Every year, the actual payment
of interest in the revised budget stands higher than the estimated
cost on payment of interest. The estimated expenditure on payment of
interest was Tk 12 ,565 crore last fiscal year, but in the revised
budget the actual expenditure stood at Tk 13 ,314 crore.

High interest rate sets back growth: Muhith

Falling investment and a high interest rate are the two major weak
spots in the economy, not the exchange rate or market intervention,
Finance Minister AMA Muhith said yesterday. "A high interest rate
hurts investment growth," Muhith said at a seminar on exchange rate
management under the floating regime. Bangladesh Institute of
Development Studies (BIDS) organised the seminar in collaboration
with Manusher Jonno Foundation, a nongovernmental organisation at
the BIDS auditorium. Muhith backed the ongoing floating exchange rate
regime and the central bank's intervention in the market and said:
"Bangladesh Bank's intervention has so far been justified". The
minister also hailed the country's debt policy and termed it '
unparalleled'. Muhith defended the current basket of currencies
against the taka. " Bangladesh's economy is highly dollarised and
even domestic transactions are done by dollar -- sometimes," he
said. He opposed a suggestion to widen the basket. But the minister
said the country lags behind in two major areas -- investment and
interest rate. The third weak area, according to Muhith, is the
capital market. "Investment cannot grow partly because of the high
interest rate," he said. "But it takes time to reduce the interest
rate further." The minister said the capital market must be deepened
to enhance investment. "Improving administrative capacity is also
vital to utilise public investment for the sake of infrastructure
improvement." Dr Salehuddin Ahmed, the immediate- past governor of
Bangladesh Bank, said currency devaluation would not benefit
exporters, but would add to the cost of doing business. "If the taka
is devalued to 75 against the dollar from present 69 exporters'
competitiveness will increase no more than 1 percent," said Ahmed
quoting a hypothetical study during his tenure at the central bank.
Ahmed also opposed the dual exchange rate policy once demanded by
exporters and a section of economists. Backing BB's intervention in
the foreign exchange market, the former governor said the central bank
does it from a neutral approach. In fiscal 2007-08 , the central
bank bought $650 million from the market and sold $533 million
back. "The intervention depends on the market situation," Ahmed
added. Bangladesh entered the floating exchange rate regime in May
2003. The first ten months remained relatively stable with just less
than 1 percent depreciation. The rate kept rising from mid-2004 and
reached its peak at Tk 70 against the dollar in 2006 from Tk 58 ,
which means a 20 percent slide. Since 2007 , the market has remained
stable and has been moving between Tk 68 and Tk 70 despite global
meltdown, declining domestic demand and devaluation of currencies by
many countries, including India, Pakistan and Vietnam. Dr Debapriya
Bhattacharya, distinguished fellow of Centre for Policy Dialogue,
said those who are promoting currency devaluation are doing it from
a narrow export outlook. "Currency devaluation will not help domestic
demand grow," he noted. Bhattacharya said interest rate cuts are more
important than devaluation of the taka. BIDS Director General Dr
Mustafa K Mujeri chaired the seminar addressed among others by
former top International Monetary Fund official and Executive
Director of Policy Research Institute Ahsan Mansur and economists MA
Taslim and Zaid Bakht. Earlier, Dr Monzur Hossain and Mansur Ahmed,
two researchers of BIDS, had made a presentation on the exchange
rate management.