Govt's higher bank borrowing to affect private credit flow: FBCCI

The higher bank borrowing by the government will hinder credit flow to the private sector which will adversely affect investment and employment, according to the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).

FBCCI President Mahbubul Alam said the deficit in the proposed budget is Tk 256,000 crore, which is 4.6 percent of GDP. However, in the current financial year, the budget deficit was 5.2 percent, he said in a post-budget press briefing at the FBCCI office in Motijheel yesterday.

To meet the deficit, the government will take Tk 160,900 crore from internal sources. Of the sum, Tk 137,500 crore will be taken from the banking sector.

"Apart from that, the government will have to bear the previous interest burden. Higher borrowing from the banking sector will also hinder credit flow to the private sector. As a result, both investment and employment will be adversely affected," Alam said.

He suggested the government borrow from foreign sources at a lower interest rate in order to finance the deficit instead of borrowing from local banks.

Alam added that the GDP growth target had been set at 6.75 percent in the proposed budget while the inflation target had been set at 6.5 percent, but opined the latter would be harder to achieve.

"In the budget for the current fiscal year, the inflation target was fixed at 6.5 percent as well. But inflation stood at 9.89 percent in May this year. We consider it a huge challenge to reduce this inflation and achieve the target. The rise in inflation must be curbed. If not, the pains and sufferings of common people will be increased."

Although a raft of steps has been taken to rein in inflation, such as by controlling the import of luxury and non-essential goods and reducing expenditure in unproductive and non-essential sectors, the government's austerity policy needs to be strengthened, the FBCCI president said.

"Taking into consideration the cost of living, inflation and the overall economic condition, we had requested to increase the tax-free income limit from Tk 350,000 to Tk 450,000. But the proposal was not taken into consideration. At present, considering inflation, we urge the government to reconsider the tax-free income limit."

He also urged the government to reconsider its proposal to abolish Advance Income Tax (AIT) and Advance Tax (AT) at the import level as such taxes are increasing business costs.

Alam said they proposed to reduce the tax deduction at source on all exports to 0.5 percent from 1 percent now, but it was not reflected in the budget.

He said the imposition of a one percent duty on capital machinery imported by firms in economic zones and hi-tech parks would discourage investors and send the wrong message to foreign investors.

Responding to a question about the FBCCI's stance on loan defaulters, Alam said they were not in favour of businessmen who default on loans.

The banks as well as the authorities concerned should follow up on the loan performance of borrowers, so they do not become defaulters, he said.

"We think banks should scrutinise the prospects of businesses thoroughly and understand their intention before granting loans," he added.

Other senior leaders of the FBCCI were also present at the press conference.