Govt borrowing from commercial banks rises 12 times in Jul-Apr
According to data from the Bangladesh Bank, the government's net borrowing from the banking sector amounted to Tk45,557 crore from last July to 22 April this year, as a repayment of Tk19,874 crore was made to the central bank.
The government's borrowing from state-owned and private commercial banks has surged in the first 10 months of the current fiscal year, reaching over Tk65,000 crore through the sale of treasury bills and bonds.
According to data from the Bangladesh Bank, the government's net borrowing from the banking sector amounted to Tk45,557 crore from last July to 22 April this year, as a repayment of Tk19,874 crore was made to the central bank.
Comparatively, the government had borrowed a little over Tk5,000 crore from commercial banks in the same period of the previous fiscal year, making the amount of borrowing increase by almost 12 times.
When asked why the government's borrowing from commercial banks has increased, a managing director of a private bank told The Business Standard that traditionally, the government raises funds by issuing treasury bills and bonds of varying durations. However, with the central bank reducing its purchases of these securities, commercial banks are compelled to step in as buyers.
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Furthermore, the interest rates on these bills and bonds have surged significantly, surpassing the returns banks typically earn from customer loans. Moreover, lending to the public entails various risks, including repayment uncertainties, he added.
He further said that in contrast, lending to the government is considered a safer investment for banks, as repayment is assured. So, both state-owned and private banks are increasingly inclined towards purchasing government securities rather than extending loans.
Currently, the interest rates on 91, 182 and 364 day treasury bills range from 11.35% to 11.50%. Besides, banks are getting 12% to 12.25% interest by investing in 2 to 20 year bonds. On the other hand, the banks can charge a maximum interest of 13.55% for general loans.
According to central bank data, As of April 22, the government's outstanding borrowing from the banking sector stood at Tk4.39 lakh crore, with Tk3.01 lakh crore borrowed from commercial banks and Tk1.38 lakh crore from the central bank.
A senior central bank official said the government has set a target of borrowing Tk1.32 lakh crore from the banking sector in the current FY24 but has so far borrowed only 34% of the target. Even during the same period last fiscal, the government's net borrowing was more than Tk78,000 crore from the banking sector. So, the trend of government borrowing from the banking sector has decreased.
When asked whether loan availability in the private sector is being affected due to the government taking loans from commercial banks, Dr Mustafa K Mujeri, former director general of BIDS, said "Demand for loans in the private sector has decreased slightly compared to previous times and one of the reasons for this could be the rise in interest rates.
"Now that the demand for loans in the private sector has decreased, banks have also found opportunities to invest in government bills and bonds."
According to Dr Mustafa, the availability of loans in the private sector is not affected much due to government borrowing.
Professor Mustafizur Rahman, distinguished fellow at the Center for Policy Dialogue (CPD), viewed the government's reduction in borrowing from the central bank positively, indicating a move towards stability and prudent fiscal management.
Commenting that the government has reduced the flow of implementation of the Annual Development Plan (ADP) in the current financial year, the economist said that the implementation of ADP has decreased during the period up to March.
"I think the government may not fully implement the ADP by the end of the fiscal year. As a result, the government's borrowing may remain below the target in the remaining two months of the fiscal year.
"In other words, the government is moving toward cost reduction. This move is consistent with the Contractionary Monetary Policy of the central bank. Public sector investment may come down slightly due to cost cuts, but considering the current economic situation, the government's move seems to be the right one," the CPD fellow added.
He said, "I think that the government is making an effort to stabilise the economy at a lower equilibrium even though the economy has low growth."
