Govt bank borrowing widens as infrastructure spending rises

The governments' borrowing from the banking sector increased about 25% at the end of 2021 against the previous year largely due to a hike in excessive spending in infrastructure projects in post-pandemic time.

The amount stood more than Tk2.20 lakh crore in December 2021 which was over Tk1.77 lakh crore during the corresponding period of 2020.

The government has taken loans amounting Tk5,000 crore recently from 34 banks by selling Islamic bond Sukuk for primary school infrastructure development projects. 

In the first phase, the central bank arranged the loan by selling Sukuk on 29 December 2021. The investors will get 4.65% "Ijarah" against Sukuk annually. The duration of this bond will be from 30 December 2021 till 30 December 2026.

Meanwhile, the government has set a target to borrow Tk76,000 crore in the current fiscal year. 

Of the total amount, it has already taken Tk33,379 crore in the first six months. Of this amount, the government spent Tk14,598 crore for debt servicing of the previous loans.

Industry insiders said the country is undergoing the process of economic recovery after the Covid pandemic. Money is required for the daily expenditure of the government and implementation of the annual development programme (ADP) although the revenue collection still stands at a lower level after Covid. 

They also added, implementation of the mega projects is going on in full swing, they said, adding: that's why the government is taking loans from banks among other domestic sources.  

In FY2020-21, the country was under lockdown due to Covid, slowing down the development expenditure. The amount of the government's bank loan was only Tk26,000 crore in that fiscal year. But the amount was Tk72,000 crore the previous year.

The month-wise data of the planning ministry showed that the government spent Tk44061 crore for ADP implementation in the first five months (July-November) of the current fiscal year, a rise of 14.52% against the previous fiscal year. The amount was Tk38472 crore during the same period last fiscal year.  

The amount spent in the FY22 is 6% higher than the FY 2019-2020.

According to the Bangladesh Bank data, the loan flow of the private sector banks in last November was 9.44% which was the highest in 18 months although the flow declined to a record low due to Covid. 

Seeking anonymity, a treasury related official told The Business Standard that the government has to pay various bills at the end of the year which contributes to the rise of the loan amount. He expressed hope that borrowing from banks will drop in the new year.

Because the amount of withdrawal has been shown very low in January in the action calendar.  

The government has estimated a budget deficit of Tk2 lakh 14,681 crore for the FY2021-2022 which is 6.2% of the total GDP. The major source of finance is the banking sector to fill the gap between income and expenditure in the budget. 

When asked, Executive Director of the Policy Research Institute of Bangladesh (PRIB) Ahsan H Mansur told TBS that the government can collect less revenue than it targets in every fiscal year. This fiscal year too, revenue collection is at a low level which has prompted the government to borrow from banks. 

"Excessive bank borrowing by the government will worsen the prevailing liquidity situation. The government should take steps to avoid these types of circumstances," he said.