With the general elections due late this year, the government has considered popular opinion for planning the budget for the upcoming 2018-19 fiscal, which analyst say will leave an adverse impact on the banking sector.
Finance Minister AMA Muhith has already hinted at raising the limit of tax-free income as well as a cut in corporate taxes.
If that turns out to be the case, the budget deficit will go up leading to increased government borrowing from the banking system.
According to officials involved in the process, the upcoming budget will target to borrow Tk 595.30 billion to bridge the gap, a staggering 300 percent higher than the current 2017-18 fiscal.
“If the government borrows Tk 600 billion, then the credit flow to private sector will be severely affected. But then again the banking sector is now suffering from a liquidity crisis,” said former caretaker government adviser AB Mirza Azizul Islam.
Sources at the finance ministry says, government borrowing will stand at Tk 200 billion in the revised budget for the ongoing fiscal, down from the targeted Tk 282.03 billion.
“The upcoming budget will not make any major changes in taxes, which means the revenue collection will not go up. So, the only option is borrowing from banks,” said an official involved in the budget process, but asked not to be named.
The official, however, added that a huge bank-borrowing will not be necessary, if the interest rates on government-offered saving schemes are not revised down.
Year | Bank borrowing (Revised ) |
2014-15 | Tk 5.14 billion |
2015-16 | Tk 316.75 billion |
2016-17 | Tk 239.03 billion |
Finance Minister Muhith has made it clear that the budget in the year of election will not see any ‘new initiative’.
“That’s not possible in election year. We will rather focus on finishing the ongoing ones,” he said while addressing a recent event of state-owned Janata Bank.
The octogenarian minister, who will be presenting his 12th budget and the Awami League government’s 10th, has also hinted at cutting corporate taxes raising tax-free income during a pre-budget discussion.
The last time tax-free income limit was revised was in the budget for 2014-15, which was raised to Tk 250,000.
