Govt borrowings fall slightly in July

Infographic: TBS

The government repaid Tk9,355 crore to the central bank in July, the first month of FY24, as the implementation of the Annual Development Programme (ADP) of the new fiscal year has not started in full swing and the revenue earnings were good in June, the last month of FY23.

However, the government borrowed Tk5,532 crore from commercial banks in July, which may mean a large part of the central bank's debt was paid with this borrowed money.

According to central bank data, the government repaid Tk3,823 crore of earlier borrowings from the banking channel in July.

The banking sector borrowing consists of borrowing from the central bank and commercial banks.

With this repayment, the government's total borrowing from the central bank has come down to Tk1.48 lakh crore and total borrowing from the banking sector to Tk3.90 lakh crore.

An official of the central bank, on condition of anonymity, told The Business Standard, "There was a liquidity crunch in the banking sector a few months ago. Later, the crisis in the banking channel was reduced due to the increased lending of money by the central bank to commercial banks through repurchase agreements (REPO) and liquidity facilities."

"But the government has now increased borrowing from commercial banks. On some days, the banking sector has to lend more than Tk10,000 crore. Borrowing from commercial banks may lead to a new crisis," he said. 

In addition, due to the sale of dollars from the reserve, a lot of money is going to the vaults of the central bank every day, the central bank official added. 

The sale of $13.58 billion from reserves in the last fiscal year resulted in Tk1.14 lakh crore being deposited in the central bank's vaults from the market.

The central bank itself had to print about Tk3,393 crore in new treasury bills and bonds purchased last July. The central bank calls this Net Devolvement. Earlier, about Tk78,140 crore was printed in FY23, which ended last June.

According to economists, when money is printed and released into the market, it fuels inflation. Inflation is currently increasing due to the printing of a lot of money in the last year. This debt reduction by the government will not be able to tame inflation much.

In the monetary policy of the current financial year which began on 1 July, the central bank has targeted to keep inflation at 6%. 

Inflation has slightly decreased to 9.69% on a point-to-point basis for the month of July from 9.74% in June and 9.94% in May, which was the highest in the last decade.

Zahid Hussain, the former lead economist at the World Bank's Dhaka office, told TBS that the borrowing that the government is repaying is short-term borrowing like Wage and Means or Overdraft. There is less pressure to implement the ADP early in the fiscal and the ongoing project work cannot be done properly due to unfavourable weather conditions. Therefore, government spending has reduced."

"Besides, the revenue flow is good at the end of every financial year. As a result, money remains in the hands of the government. Due to these reasons, the government does not need much money in the first month of the fiscal year. Overall, government borrowing from the banking sector has decreased," he said.

In FY23, the government had targeted borrowing of Tk1,06,334 crore from the banking sector but had to borrow Tk 1,19,275 crore at the end of the fiscal year due to increased expenditure.

The government has set a loan target of Tk1,32,395 crore from the banking sector to meet the deficit of the FY24 budget.

Zahid Hussain, when asked whether the government may have to borrow more than the target in the current financial year, said a few days ago, the government announced that officials will be given 5% of the basic salary as an incentive every month. Also, the proposal to buy new expensive vehicles for government higher officials has been passed. These will increase government expenditure. 

"In addition, as it is an election year, the government will want to quickly complete some ongoing projects to show the development work to the people. From the observation of these events, it is understood that a lot of money will be required to meet the expenses in the coming days," said the economists.

"But our revenue will not increase that way. As a result, the government may have to borrow more than the target in the current fiscal year as well," Zahid Hussain added.