Economy
Tk 15k Crore Govt Loan from Banks
Prior this year, the government refunded more than what it had borrowed from the banks. as of sudden, the government has raised borrowing from the banking sector. In the previous month, the government has taken a loan of Tk 13 thousand 481 crores from the banking sector.
According to the sources of Bangladesh Bank (BB), in late September, the government’s net debt from banks increased by 12 thousand 526 crores to 2 lakh 82 thousand 712 crores. A month ago at the end of August, the amount of this loan was 2 lakh 69 thousand 230 crores. That is, in one month the government took a loan from the bank of 13 thousand 418 crores.
But the government’s debt is now towards the central bank. Increased demand for loans from central banks rather than borrowing from commercial banks. In the 3 months of the current financial year, the government has taken a loan of Tk 16,833 crore from the central bank. At the same time, the government’s debt to commercial banks decreased by Tk 4,307 crore. As a result, the government’s net debt has increased by Tk 12,526 crore.
Regarding the increase in debt, the former caretaker government’s financial advisor economist AB Mirza Azizul Islam told that the government’s expenditure has increased. As the income is less than the expenditure, now they are borrowing from the bank to meet the demand for additional money. However, the amount of bank loans taken by the government in 3 months is not more than their target. So there is no reason to worry about this loan.
After reviewing the data of Bangladesh Bank, it was found that in the first 2 months of the current (2022-23) financial year, the government did not take debts from the banking sector but instead paid them. In the two months till last August, the government’s net debt from banks decreased by Tk 955 crore to Tk 2 lakh 69 thousand 230 crores. Although at the end of June, the amount was 2 lakh 70 thousand 185 crores.
The government is setting a target that the bank will take a bank loan of Tk 1 lakh 6 thousand 334 crore to meet the budget deficit of the current fiscal year 2022-23. This amount is 29 thousand 882 crores more than the target for the current financial year. In the budget of the previous financial year, the target was to borrow 76 thousand 452 crores from the banking system. It has set a target of taking a loan of 35 thousand crore takas from savings accounts in the current financial year.
According to the data of the National Savings Directorate, savings bonds worth Tk 14,538 crore have been deposited or sold in the first 2 months (July-August) of the current fiscal year 2022-23. Out of this, principal and profit have been paid to the tune of 14 thousand 136 crores. After paying the principal and profit of savings bonds, the government’s net debt in this sector stands at Tk 401 crore.
In the meantime, regardless the fall in foreign exchange reserves, the central bank increased dollar sales. Bangladesh Bank is selling dollars to banks at Tk 97. Last Thursday sold 13 million dollars to several banks. In total, the sales volume of the current financial year so far has stood at 4 billion dollars. Against this, as much as 38 thousand crore takas have come out of the market. Last financial year 762 million 17 million dollars were sold. Thus, as a result of the sale of dollars, the foreign exchange reserves, which rose above 48 billion dollars, fell to 36 billion dollars.
It is known that due to various reasons including the instability of the food and energy markets due to the impact of the Russia-Ukraine war, the government aimed more at cost reduction in the beginning. Hence, the 1st month of the financial year also saw good growth in revenue and foreign grants and loans increased. Due to the effect of these two, the government has taken fewer loans from the bank. But now some projects have started. Again, due to the effect of the Russia-Ukraine war, food and fuel prices have increased in the world market. As a result, the government has to spend more money on food and fuel imports than before. However, the rate at which the cost of money has increased, the income does not increase at that rate and the bank has to take a loan. So the government is leaning on bank loans.
The World Bank reported that approximately $3.15 billion is illicitly transferred out of Bangladesh each year through offshore accounts.
Citing the State of the Tax Justice Report 2020, the World Bank stated that the offshore financial wealth of Bangladeshis is estimated at 0.7% of the nation’s GDP.
“Including losses from corporate abuse and offshore tax evasion, tax revenue losses are estimated at over $700 million,” the World Bank stated in its latest Bangladesh Development Update report published on 2 April. This amount equals 2.2% of the country’s total revenue income in fiscal year (FY) 2019-20.
In the Development Update report, the World Bank noted that illicit capital flows into offshore accounts from Bangladesh have been increasing.
Referring to the latest Global Financial Integrity Report 2021, the bank mentioned: “Between 2009 and 2018, as much as $3.6 billion on average per year has been laundered from Bangladesh through trade mis-invoicing.”
The World Bank highlighted that Bangladesh’s illicit capital outflow through offshore accounts is high compared to some of the country’s peer nations in its Development Update report.
Currently, Bangladesh ranks 54th among 133 countries in the Financial Secrecy Index, which assesses the extent to which a country’s tax and financial systems facilitate individuals in concealing their finances from the rule of law, according to the World Bank.
The bank further stated that Bangladesh ranked 44th globally and 3rd in South Asia in terms of illicit outflows through trade mis-invoicing.
The International Monetary Fund (IMF) has once again lowered its growth forecast for Bangladesh’s economy to 5.7 percent for the current fiscal year of 2023-24. This revision was outlined in the IMF’s World Economic Outlook released on Tuesday, April 16.
The IMF’s revised projection highlights various global and local challenges, including persistent high inflation, unemployment, reduced remittance inflow, and a decline in industrial investment targets.
This marks the second time the IMF has reduced its economic growth forecast for Bangladesh. In October of last year, it initially projected a 6 percent growth rate, down from its previous prediction of 6.5 percent for the FY2023-24 period.
The IMF’s growth forecast follows a recent announcement by the Asian Development Bank (ADB), which stated that Bangladesh’s GDP is expected to expand by 6.1 percent in FY 2023-24, driven by export growth.
Earlier this month, the World Bank also weighed in, stating that Bangladesh’s growth will be subdued due to reduced private consumption affected by high inflation. It forecasted a GDP expansion of 5.6 percent in FY 2023-24, below the average annual growth rate of 6.6 percent recorded over the decade preceding the Covid-19 pandemic.
China’s economy grew faster-than-expected in the first quarter, data showed on Tuesday, offering some relief to officials as they try to shore up growth in the face of protracted weakness in the property sector and mounting local government debt.
However, a raft of March indicators released alongside the GDP data – including property investment, retail sales and industrial output – showed that demand at home remains frail and is retarding overall momentum.
The government has unveiled a raft of fiscal and monetary policy measures in a bid to achieve what analysts have described as an ambitious 2024 GDP growth target of around 5%, noting that last year’s growth rate of 5.2% was likely flattered by a rebound from a COVID-hit 2022.
Gross domestic product (GDP) grew 5.3% in January-March from the year earlier, data released by the National Bureau of Statistics showed, comfortably above analysts’ expectations in a Reuters poll for a 4.6% increase and slightly faster than the 5.2% expansion in the previous three months.
“The strong first-quarter growth figure goes a long way in achieving China’s ‘around 5%’ target for the year,” said Harry Murphy Cruise, economist at Moody’s Analytics.
“Industrial production also supported through the quarter, but weak March data is cause for some concern. Similarly concerning, China’s households continue to keep their wallets closed.”
On a quarter-by-quarter basis, GDP grew 1.6% in the first quarter, above the forecast for growth of 1.4%.
The world’s second-largest economy has struggled to mount a strong and sustainable post-COVID bounce, burdened by a protracted property downturn, mounting local government debts and weak private-sector spending.
Fitch cut its outlook on China’s sovereign credit rating to negative last week, citing risks to public finances as Beijing channels more spending towards infrastructure and high-tech manufacturing.
The government is drawing on infrastructure work – a well-used playbook- to help lift the economy as consumers are wary of spending and businesses lack confidence to expand.
WEAK MARCH DATA
The economy was off to a solid start this year, but March data on exports, consumer inflation, producer prices and bank lending showed that momentum could falter again and reinforced calls for more stimulus to shore up growth.
Indeed, separate data on factory output and retail sales, released alongside the GDP report, underlined the persistent weakness in domestic demand.
Industrial output in March grew 4.5% from a year earlier, compared with a forecast increase of 6.0% and a gain of 7.0% for the January-February period.
Growth of retail sales, a gauge of consumption, rose 3.1% year-on-year in March, against a forecast increase of 4.6% and slowing from a 5.5% gain in the January-February period.
Fixed asset investment grew an annual 4.5% over the first three months of 2024, versus expectations for a 4.1% rise. It expanded 4.2% in the January-February period.
“On the face of it, the headline number looks good… but I think the momentum is actually quite weak at the end,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore.
Prior to the data release, analysts polled by Reuters expected China’s economy to grow 4.6% in 2024, below the official target.
Following the improved first-quarter GDP outcome, economists at ANZ raised their 2024 China growth forecast to 4.9% from 4.2% previously, while BBVA maintained their 4.8% growth projection.
Most investors appeared to take the headline GDP surprise with a pinch of salt given the weakness of the March data.
Traders said China’s state-owned banks were selling dollars to steady the yuan in the onshore market. China stocks .CSI300 were tracking broader markets lower as geopolitical tensions in the Middle East sapped risk sentiment.
CHALLENGES
The crisis in the property sector has been a major drag on China’s economy as it has rippled across business and consumer confidence, investment plans, hiring decisions and stock prices.
The March data highlighted the depth of the troubles in the sector, with investor confidence and demand still at a low ebb.
China’s new home prices fell at their fastest pace in more than eight years last month as debt troubles among property developers hurt demand.
Property investment slumped 16.8% year-on-year in March, worse than a 9.0% drop in January-February, while sales tumbled 23.7%, compared with a 20.5% fall in the first two months of the year.
With the Federal Reserve and other developed economies showing no urgency to start cutting interest rates, China may also face a longer period of subpar export growth in a further blow to policymakers’ hopes of engineering a strong economic recovery.
Adding to the challenge for China, authorities also have to contend with ongoing tensions with the United States over trade, technology and geopolitics.
Investors are looking to an expected Politburo meeting in April for clues on policy direction, though few analysts expect any major stimulus.
The People’s Bank of China (PBOC) has pledged to step up policy support for the economy this year, with markets betting on further cuts in banks’ reserve requirement ratio and interest rates.
Some analysts believe the central bank faces a challenge as more credit is flowing to production than into consumption, exposing structural flaws in the economy and reducing the effectiveness of its monetary policy tools.
Looking ahead, Jinyue Dong, senior economist at BBVA research, said he believes the “recovery has not got a solid foundation yet as the deep adjustment of real estate market and local government debt overhang still remain the main risks.”
“In addition, geopolitics risks mostly due to China-US confrontations before the US president elections will persist in the foreseeable future.”
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