Govt’s borrows one-third of yearly bank borrowing target in April

The government borrowed Tk 24,119 crore this April from the banking system to tackle demand for funds that grew sharply to meet the budget deficit, which in turn pushed its total borrowing to Tk 32,488 crore in July-April period of FY22.

This net borrowing is a significant increase from Tk 8,369 crore recorded in the July-March period of the same FY, shows provisional data from the Bangladesh Bank.

To mitigate the budget deficit of Tk 2,11,191 crore for FY22, the government had set a borrowing target of Tk 76,452 crore from the country’s banking system, and Tk 32,000 crore from the net sales of the national savings certificates (NSC).

To meet the increasing costs of development projects at the end of last quarter of the current fiscal year, the government ministries have placed huge budget allocation against their ongoing projects, officials at the finance ministry said.

‘It is just last moment rush of huge spending against normal monthly revenue growth,” the official added.

“You can call it a fiscal mismatch.”

The government also set a target of Tk 97,738 crore in net foreign financing and Tk 5,001 crore from other sources.

Net borrowing from banking system

During the July-April period of FY22, the government borrowed Tk 25,240 crore from scheduled banks and Tk 7,248 crore from the Bangladesh Bank.

Speaking to The Business Post, former lead economist of World Bank Dhaka Office Zahid Hussain said, “Usually, the payment of arrears of various projects increase in the last quarter of a financial year.

“The government may exceed the borrowing target by the end of this FY. Exceeding the borrowing target could increase inflation, and disrupt the flow of private credit.”

Due to the Covid-19 pandemic, credit flow to the private sector has been low since the beginning of the current financial year, but it began rising this January. The credit growth stood at 11.29 per cent in March, which was the highest in recent times.

The amount of government loans taken from the Bangladesh Bank has also increased significantly in April.

During the July-March period of FY22, this borrowing was negative Tk 10,395 crore, which means the government actually paid the central bank. However, the amount was Tk 7,248 crore in the July-April period this FY.

Zahid Hussain said the matter, “This particular type of loan is almost like printing money. This is also known as accounting entry. An increase in such loans is a matter of concern, as it will increase the supply of money, and can cause the inflationary pressures to rise further.

“The central bank had recently injected USD in the country’s money market, and this in turn caused a liquidity shortage in the banking sector. The government may have increased borrowing from the central bank to counter this issue.”

To keep the exchange rate for USD stable, the central bank has withdrawn Tk 52,500 crore from the money market against about $6 billion from August to May this FY. The government’s borrowings from scheduled banks stood at Tk 25,240 crore in the July-April period this FY, which was Tk 18,764 crore between July and March the same year, showing an increase of Tk 6,476 crore in April.

So, these figures indicate that the government borrowed less from scheduled banks than from the central bank this April. “The interest rates of the bills and bonds, by which the government borrows directly from scheduled banks, are now low. This may show that the banks are less interested in lending to the government,” said Zahid Hussain. The government borrows from scheduled banks through five types of bonds and three types of treasury bills. The interest rate of bonds is between 6.14 per cent and 8.05 per cent. On the other hand, interest rates on treasury bills are between 4.95 per cent and 5.85 per cent.

The government’s net borrowing from the banking system already reached nearly half of its target of Tk 76,452 crore in FY22.

Zahid Hussain believes that the Bangladesh government may exceed its net borrowing target amount for this FY in the next two months, as the implementation rate of annual development programme (ADP) is higher in current FY when compared year-on-year.

According to the Implementation Monitoring & Evaluation Division (IMED), ADP implementation was Tk 98,935 crore in July-March of current FY, standing at 45.56 per cent of total target. The revised ADP target is Tk2,17,175 crore for FY22.