Sources of Borrowing and their Implications

Total public borrowing has been increasing since FY 2009-10, and the government has set its target to borrow at Tk. 48362 crore in the budget for FY 2013-14. This is equal to an increment by Tk. 3986 crore than the amount borrowed in the previous fiscal year. This increasing public borrowing indicates that revenue collection is not increasing
adequately. In FY 2013-14, the government assumes that Tk. 23,729 crore from external sources and Tk. 33,964 crore from domestic sources will finance the deficit. Tk. 25,993 crore will be funded from the banking system, and Tk. 7,971 crore from savings certificates and other non-banking sources.

The government has exceeded its set targets of borrowing from banking sector in the last three fiscal years. Government has crossed the target of borrowing from banking sector in FY 2012-13. Borrowing from banking system has increased to Tk. 28500 crore in the revised budget in FY 2012-13 from Tk. 23,000 crore of the proposed budget of the same year.

Again, the government has set its target at Tk. 25,993 crore in FY 2013-14 which might cross the target. The deficit has two clear costs for the economy. First, higher borrowing of government from domestic sources has crowded out the investment in private sector. Second, policy costs are included in the deficit.

High public debt hinders the economic growth and affects the economy. It puts upward pressure on real rates of interest, which may crowd out the private investment. The government has been forced to cut expenditure, particularly in social sectors.