Tk 1280b likely to be allocated in upcoming budget to pay interest

Interest of around Tk 1280 billion for local and foreign loans is likely to be allocated in the upcoming budget of 2024-25 fiscal year, which is double than the allocation five years ago, according to sources at the finance ministry.

The estimated interest for local loans will stand at Tk 1008 billion while for foreign loan will stand at Tk 200 billion.

Finance minister Abul Hassan Mahmood Ali will present the budget in the parliament on 6 June.

The government is planning to take a big loan as revenue has not been collected as expected. Moreover, the government has to meet development expenditure.

As a result, the government has to pay a huge amounts of interest against the loan. Two other reasons for allocation for payment of huge amounts of interest are hike of interest rates of bank loans and significant depreciation against dollar.

The size of the next budget will be about Tk 8,000 billion with a deficit of around Tk 2750 billion.

Tk 943.76 billion was allocated for payment of interest in the current budget of 2023-24. The finance division has estimated that this amount will not cover and the amount has been increased to Tk 1050 billion in the revised budget.

According to the finance division, the government had a loan of Tk 16,593.34 billion till December 2023. Of the amount the local loan is Tk 9538.14 billion and foreign loan is Tk 7055.25 billion.

Bank loan interest was limited to 9 per cent over four years. In accordance with the International Monetary Fund (IMF), Bangladesh Bank has made a market based interest rate from the current month. Interest rate in the commercial banks has already reached 17 per cent.

Bangladesh Bank has advised to keep the interest rate within 14 per cent. The interest rate of the government treasury bill is now from 11 per cent to 12 per cent. In this view of reality, the finance division is thinking that the interest for local or internal loans can be allocated Tk 1080 in the upcoming budget.

In a letter to the finance division in February, the economic relation division secretary Shahariar Kader Siddiqui said the government is implementing a number of big projects and additional loans have been taken. Additional loan is being given against it.

Speaking to Prothom Alo, Policy Research Institute (PRI) executive director Ahsan H Mansur said, "I think allocation of around Tk 1280 billion will not be enough to pay interest. Expenditure for interest will increase further."

Ahsan H Mansur also said, "Allocation for payment of interest will also be increased due to taking loans from China and Russia. I will suggest taking a foreign loan as it is cheap."

The finance division sources said like every year, a big portion will be spent to pay interest on savings certificates in the upcoming budget. The amount will be around Tk 470 billion, which is Tk 420 billion in the current fiscal year.

The second highest interest will be allocated against the investment in treasury bonds. The amount may be Tk 350 billion, the amount is a bit over Tk 260 billion.

The amount of interest for foreign loan will be around two fold in the upcoming budget than the current fiscal year.

The finance division looks after the management of cash and loans. The division is supposed to hold a meeting presided over by the finance division secretary over cash and loan management every three months.

Representatives from Bangladesh Bank, Internal Resource Division (IRD) and National Savings Authority attend the meeting. The finance division sources said in most of the cases the meeting does not take place timely and decisions are not taken seriously.

When asked about the matter, an official involved in formulating the budget, said the government has to take additional loans, so interest expenditure will also increase.

Speaking to Prothom Alo, former secretary Mahbub Ahmed said on the one hand taka has been depreciated against dollar and interest of all types of loans has increased on the other. So the expenditure for loan interest of loan will increase.

Mahmud Ahmed also said huge dues have not been paid in the current fiscal year and those have to be paid in the upcoming financial year.

*This report, originally published in Prothom Alo print and online editions, has been rewritten in English by Rabiul Islam