High govt borrowing from BB continues

The government continues to borrow high amounts of money from the Bangladesh Bank to cover its expenditure, as commercial banks face a tight liquidity situation.

It borrowed Tk 92,289 crore from the banking sector in the first eleven months (July-May) of this fiscal year (FY), of which Tk 71,610 crore came from the central bank, as per the latest data from the Bangladesh Bank.

The government borrowed only Tk 20,678 crore from commercial banks during the same period.

Experts say borrowing from the central bank instead of commercial banks is fuelling inflation, and such a trend is tantamount to printing money.

Speaking to The Business Post, former lead economist of World Bank Dhaka Office Zahid Hussain said, “Even though money is being printed directly, it can be said that new money has been created in the accounting process.

“It is not a good process for a vibrant economy. The inflation is rising due to direct borrowing from the Bangladesh Bank.”

Inflation reached 9.94 per cent in May, highest in over a decade, as per data from the Bangladesh Bureau of Statistics (BBS). The government has set a target to attain an average inflation rate of 6 per cent in the next fiscal year.

Hussain added, “In order to reduce high inflation, we need to reduce money flow from the market. When the government borrows from commercial banks, the flow of credit to the private sector will decrease. It would help tame the inflation further.

“All the countries across the globe are doing so.”

The Bangladesh government took loans directly from the Bangladesh Bank, which increased money flow in the market, he mentioned.

A senior official of the central bank’s Debt Management Department said, “The country’s banking sector is currently facing a severe liquidity shortage due to the existing crisis in the forex market.

“The country’s banks have been getting USD support from the regulator for making import payments since August 2021. As a result, an equivalent amount of local currency was withdrawn by the central bank.”

The Bangladesh Bank pumped over $13 billion into the country’s banking sector from its forex reserves during the eleven months of this fiscal year. It sold over $7 billion to banks in the last FY, which means the equivalent amount of local currency was withdrawn.

This money was provided to the government, says the BB official.

The government’s borrowing target from the banking sector was set at Tk 1,11,608 crore in the national budget for FY23. Later the figure was revised to Tk 1,15,425 crore.

It plans to borrow Tk 1,32,395 crore from local banks in FY24 to finance the projected deficit in the proposed budget of Tk 7,61,785 crore. This target is 14.70 per cent higher than the revised target for the outgoing FY23.

Finance ministry sources say the government wants to reduce the interest burden because the interest on saving tools is higher than the bank borrowing, adding that is why the bank borrowing target is higher against the lower borrowing target from the saving tools.

Three treasury bills are now transacted through auctions to adjust the government’s borrowing from the banking system. The bills have 91-day, 182-day, and 364-day maturity periods.

Furthermore, five government bonds with tenure of two, five, 10, 15, and 20 years are currently being traded in the money market.