The government borrowed Tk 29,378 crore from the countrys commercial banks in seven months (July-January) of the current financial year 2023-24 but repaid Bangladesh Bank Tk 29,498 crore, according to Bangladesh Bank (BB) data showing a net negative borrowing of Tk 120 crore.
The government had set a borrowing target of Tk 1.32 lakh crore from the banking system for FY24. However, due to inflation and economic crises, it stays far away from this target.
To stabilise the macroeconomic situation, the government has implemented a contractionary monetary policy. It has also reduced borrowing from domestic sources.
The net sales of national savings certificates (NSC) plunged to a negative of Tk 6,063 crore in July-December period of 2023, meaning that repayments of such amounts were made from the governments exchequer or through loans taken from the banking system.
To address a fund crisis, the government is issuing bonds to cover its outstanding payments of about Tk 42,000 crore in the power and fertiliser sectors. Its raised interest to encourage deposits and discourage lending, but it has been caught off guard by a fall in revenue collection.
Bankers have expressed concerns that the governments increasing reliance on borrowing from commercial banks could worsen the existing liquidity crisis in the banking sector. Excess liquidity in the banking sector decreased from Tk 1.59 lakh crore in October to Tk 1.4 lakh crore in November.
Responding to ongoing dollar crisis, BBs utilised the countrys foreign currency reserves, selling approximately $29 billion over the past 31 months.
This process consequently absorbed an equivalent of taka from the banking system, which has contributed to prevailing liquidity pressure, bankers said.
The presence of increased levels of distressed assets, particularly non-performing loans (NPL), coupled with sluggish deposit growth has further strained liquidity conditions in the banking sector, they said.
In financial year 2022-23, the governments borrowing from the countrys banking sector was Tk 1.24 lakh crore including Tk 98,826 crore borrowed from the central bank and Tk 25,296 crore from the countrys commercial banks.
Recognising that further borrowing from Bangladesh Bank could fuel inflationary pressures, the government exercised prudence following its substantial borrowing, bankers said.
When the central bank extends loans to the government, it effectively injects new money into the economy, potentially driving up consumer prices and contributing to inflation, they said.
To manage its borrowing needs, the government primarily relies on advances, overdrafts, and the issuance of treasury bills and bonds from the banking system.
The heavy reliance on borrowing from the banking system may signal challenges in revenue generation and limited access to alternative financing avenues, bankers said.
The government borrowing from non-banking domestic sources include government T-bills and bonds owned by non-bank financial institutions (NBFI), insurance firms, and private investors, as well as savings vehicles developed by the Directorate of National Savings.
The total outstanding loans of the government from the commercial banks increased to Tk 2,61,847 crore on November 29, 2023 against Tk 2,39,615 crore on June 30, 2023, according to the BB data.
However, the governments total outstanding borrowing from the banking sector declined to Tk 3,97,417 crore as on November 29, 2023 against Tk 3,93,774 crore on June 30, 2023.
