Bangladesh desperate for foreign loans to meet budget deficit

The Bangladeshi government is desperately seeking loans from overseas lenders to make up a big budget deficit of 395 billion taka in the ongoing financial year 2009-10 (July 2009 and June 2010) and retain the country's foreign exchange reserve at a level of 10 billion U.S. dollars.

The government's Economic Relations Division (ERD), responsible for overseas loans and grants, is now engaged in hectic lobbying with the country's bilateral and multilateral lenders to procure at least 185 billion taka for deficit financing, leading English newspaper New Age reported Sunday.

The remaining amount of budget deficit worth around 210 billion taka would be met through local borrowings from commercial banks and state-run saving instruments.

Quoting Finance Ministry officials, New Age pointed out that the government was giving emphasises on overseas loans as the rate of interest against borrowing from the local sources is very high.

Compared to one percent interest rate annually for overseas loans, the government has to pay more than seven percent interest for loans taken from the local sources.

Apart from this, the government is facing the challenge of keeping the country's foreign exchange reserve at over 10 billion U.S. dollars to shore up its image.

The foreign exchange reserve which has been hovering over 10 billion U.S. dollars in last one year is under threat because of slow export growth and downward inflow of remittances against the backdrop of delayed impact of the global financial recession.

In March, the government instructed the ERD to speed up the negotiation process for the overseas loans whose interest rate would be around 2 percent. The ERD has already asked the lenders to let it know about their lending plans.

The Bangladeshi Parliament in June last year passed 1.14 trillion taka national budget for the ongoing 2009-10 fiscal year ending in June this year. (1 U.S. dollar equals 70 taka)

Source: Xinhua