Govt net bank borrowing 83.34% of revised target

The Bangladesh government – in the just concluded FY22 – borrowed 83.34 per cent of the revised target for borrowing from the country’s banking sector. However, this figure was around three times higher compared to FY21.

Data from the Bangladesh Bank shows that the government’s net borrowing was Tk 72,749.52 crore in FY22. Of this figure, Tk 41,345.62 crore came from scheduled banks, and Tk 31,403.90 crore from the central bank.

In the FY22 budget, the finance ministry had set a borrowing target of Tk 76,452 crore from the banking sector, which was later revised to Tk 87,287 crore to meet the country’s budget deficit.

Commenting on the matter, former lead economist at the World Bank Dhaka office Zahid Hussain said, “I believe that Bangladesh will not reach the budget deficit target in FY22, and this is the reason behind the government’s net bank borrowing falling behind the target.

“Typically, every year the actual budget deficit is 10 per cent to 15 per cent lower than the target. This gap seems to have increased in the last financial year.”

In the last FY, the revised budget deficit was Tk 2,04,500 crore, which was 5.1 per cent of the gross domestic product (GDP). The deficit target was Tk 2,14,681 crore and 6.2 per cent of GDP in the proposed budget of FY22.

Zahid Hussain also believes that the government bank borrowing may have gotten lower than the target due to a lack of implementation of the Annual Development Programme (ADP).

The full data of the ADP implementation of the last FY has not been released yet. However, in the first 11 months of FY22 (June-May), ADP implementation was 65.56 per cent or Tk 1,42,387.90 crore.

Net bank borrowing increases threefold YoY

Although the government’s net bank borrowing is less than the target in FY22, it has increased almost three times compared to FY21.

According to the central bank data, the government’s net bank borrowing was Tk 24,292 crore in FY21, compared to Tk 72,749.52 crore in FY22.

Adding that the budget deficit in FY22 was more than the previous FY, Zahid Hossain said, “Apart from this, bank borrowings in FY22 increased more than the previous FY due to reduced budget implementation amid the pandemic and lower sale of savings certificates.”

The actual budget deficit was Tk 1,31,495 crore in FY21, which was 3.7 per cent of the GDP. Besides, the saving certificates sales declined by half in July-May period of FY22, compared to the same period of the previous year.

Savings certificate sales were TK 18,157 crore in July-May of FY22, which was Tk 37,386 crore in the same period of FY21.

Govt borrowing from BB spikes

In the last FY, the government borrowed about Tk 31,404 crore from the Bangladesh Bank. However, in FY21, the government did not borrow from the central bank, instead it paid back Tk 19,811 crore to the banking regulator.

Zahid Hussain pointed out that loans taken from the Bangladesh Bank is like printing money, and such a move increases inflation.

He added, “But currently the Bangladesh Bank is supporting USD in the market to tackle the ongoing crisis, as the liquidity of banks has decreased. Therefore, loans taken from Bangladesh Bank by the government could not affect inflation.

“Had the banks not been in a liquidity crisis due to the USD shortage, inflation would have been higher.”

For the current FY, the government has set a Tk 1,06,334 crore target for bank borrowing, which is 2.4 per cent of the GDP.