Govt borrowing from commercial banks surges

The government borrowed Tk2,341 crore from the scheduled banks in January this year, up from Tk863 crore in the previous month.

With the latest addition, the borrowing from the sector in the first seven months of FY23 rose to Tk34,590 crore.

Bankers and analysts said the government's borrowing from commercial banks can put further strain on the banking sector already hit by a liquidity crunch. It also can badly impact the sector in meeting deposit and loan obligations, which can lead to a further tightening of credit and a reduction in economic activities.

"The liquidity crunch may be intensified further with the government borrowing from commercial banks," Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), told The Business Standard.

The existing liquidity crunch has appeared as commercial banks have been buying dollars from the central bank in exchange for liquid money, he explained and said, "The authorities should take care [of the situation] and ensure that liquidity crunch does not increase and loanable funds do not decrease further."

According to the Bangladesh Bank data, the government loans from commercial banks were Tk2.02 lakh crore at the end of January last, which was Tk1.81 lakh crore in December, meaning that the government borrowed some Tk21,000 from the sector in a month.

With the amount, it provided the central bank with Tk19,000 crore in loan repayment aiming at tackling inflation, the data said. 

"Since borrowing from the central bank raises inflation sometimes, the government is now trying to reduce inflationary impacts by repaying central bank loans. The reduced dependency on the central bank is good in terms of macroeconomic and monetary management," added Professor Mustafizur Rahman.

With the loan repayment, the government debts to the central bank fell to Tk1.02 lakh crore in January from Tk1.21 lakh crore in December. In the first seven months of FY23, the government borrowed Tk46,048 crore in total from the central bank and some Tk11,089 crore of the amount went to the country's money circulation system in the name of loan repayments to commercial banks.

The government set a target of borrowing Tk1.06 lakh crore from the banking sector to meet the budget deficit for FY23. At the end of January, it borrowed 32.53% of the target.

Over the past year, from January 2022 to January 2023, the government took loans of around Tk91,000 crore from the banking sector, mostly from the central bank, according to official data, raising its total debts to banks to Tk3.05 lakh crores.

The government usually takes loans to meet the deficit budget and most of the funds are spent on the annual development budget. Apart from the banks, it also borrows from saving instruments and non-bank financial institutions.

In the current fiscal year, the government has a target of borrowing Tk35,000 crore from saving tools and Tk5,000 crore from non-bank financial institutions for FY23. Against the target, it borrowed Tk6,786 crore from non-bank institutions until January.

Meanwhile, borrowings from savings tools fell by Tk3,107 crore in the first six months as it borrowed Tk40,472 crores from the tools and paid back Tk43,579 crores.