The government – in a bid to meet the budget deficit – borrowed a record Tk 1,24,123 crore from the banking sector during the just concluded fiscal year.
Of the amount, it borrowed 80 per cent form the central bank and the rest 20 per cent from commercial banks, as the latter have been facing a tight liquidity situation.
Experts have criticised the government borrowing from the central bank, terming the move similar to printed money entering the economy and fuelling inflation.
The government had borrowed Tk 98,826 crore from the Bangladesh Bank and rest Tk 25,296 crore from commercial banks, as per the latest data from the regulator. FY23 ended on June 26 because June 27 – June 30 were Eid holidays.
A central bank senior official, requesting anonymity, said, “This is the highest ever amount the government ever borrowed from the banking sector.
“The government borrowed higher amounts from the central bank as commercial banks have been facing a severe liquidity crisis due mainly to the volatility in the foreign exchange market.”
On the issue, former lead economist of the World Bank Dhaka Office Zahid Hussain said, “Even though money is not being printed directly, it can be said that new money was created in the accounting process.
“This is not a good move for a vibrant economy, and the inflation is rising due to direct borrowing from the Bangladesh Bank.”
Inflation raced to an 11-year high of 9.94 per cent in May, show data from the Bangladesh Bureau of Statistics (BBS).
Zahid said, “To reduce inflation, we need to reduce money flow in the market. If the government borrows from commercial banks, the flow of credit to the private sector will decrease, and it would help tame inflation.
“All the countries across the globe are doing it. But the Bangladesh government did the opposite by taking loans directly from the central bank, and it increased money flow in the market.”
During the recent unveiling of the new monetary policy, when asked about the high borrowing from the central bank by the government, Bangladesh Bank Governor Abdur Rouf Talukder told reporters that printing money is a continuous process and every country is doing the same.
He then added, “The regulator collected Tk 1,30,000 crore from the banking sector by selling USD to the banks, and that money was given to the government. The Bangladesh Bank had pumped nearly $14 billion to banks in FY23 to meet the USD crisis.
“If the government purchases essential goods or services through this borrowed money, then it will not fuel inflation.”
The target of government borrowing from the banking sector was set at Tk 1,11,608 crore in the national budget for FY23. The target was later reset to Tk 1,15,425 crore in the revised budget.
However, the government’s bank borrowing is 7.53 per cent higher than the revised target. Its total bank borrowing was at Tk 68,652 crore in FY22. The senior Bangladesh Bank official said the government borrowing has increased due to the shortfall in revenue income.
The National Board of Revenue (NBR) collected Tk 3,25,272 crore in the concluding FY23, hitting 8.12 per cent growth compared to the previous fiscal year.
However, revenue income still lagged behind Tk 44,727 crore in the FY2022-23 by attaining 87.91 per cent of its target of Tk3,70,000 crore, according to a provisional data until Sunday.
The government plans to borrow Tk 1,32,395 crore from local banks to finance the projected deficit in the Tk 7,61,785 crore national budget for FY24. This target is 14.70 per cent higher than the revised target of Tk 1,15,425 crore for FY23.
