The government, with two months left till the end of the fiscal year (FY), has so far borrowed 42.50% of the set target of borrowing, according to a report of Bangladesh Bank.
In the FY22 budget, the ministry set a target of borrowing Tk76,452 crore from the banking sector to meet the budget deficit of the country.
According to the data, the government borrowed Tk25,240 crore from banks and Tk7,247 crore from the central bank in the first 10 months of the current FY (July-April). Thereby, the government's net debt in the banking sector stands at Tk32,488 crore.
As of April last year, the government had borrowed Tk1,71,420 crore from the banking sector. At the end of April of the current fiscal, the debt has come to stand at Tk2,34,604 crore. During this one year, the government's cumulative borrowing from the banking sector stands at Tk63,183 crore – implying an increase of government's debt by 37% till April of the current FY as compared to April last year.
The government has increased this amount of loan from banks to reduce the budget deficit and keep the development projects going.
In the first nine months of the current fiscal year, the government implemented 45.56% of the Annual Development Program (ADP).
Experts believe if the pressure to implement ADP increases in the coming days, the credit of the banking sector will also increase.
The budget deficit in FY2021-22 was Tk2,14,681 crore, which is 6.2% of the country's GDP. Much of this deficit is met by borrowing from the banking sector.
Bills for various government projects are usually paid at the end of a FY. Hence, the pressure of borrowing increases towards the end. The government is expected to increase its borrowing from the banking sector in May and June, according to a senior official of Bangladesh Bank.
Meanwhile, the loan target has been raised to Tk87,288 crore in the revised budget even though the loan target has not been met. Although the revenue collection has increased by 15% in the first nine months of the FY, the government wants to increase the amount of debt to meet the expenses.
However, the Governor of Bangladesh Bank found this approach of increasing the target "very abnormal." He suggested not to increase the amount borrowed from the banking sector from the original budget in a joint meeting of the government.
According to data from Bangladesh Bank, the government has so far borrowed Tk3,846 crore from the non-banking sector through treasury bills and bond issues. As such, the government has borrowed a total of Tk36,334 crore from domestic sources, excluding the sale of savings certificates.
In the first nine months of the current FY, the government has borrowed Tk16,504 crore by selling savings certificates. The target was set at Tk32,000 crore in the budget. In other words, the government has been able to borrow 51% of the target by selling savings certificates.
CPD Senior Research Fellow Towfiqul Islam Khan told The Business Standard, "Government spending will increase in the last quarter. This is because subsidy spending is rising and there is also pressure to implement the ADP. Of the three sectors from which the government borrows to meet the budget deficit, the savings sector is generally not directly controlled."
"At present, people are saving less due to the inflationary pressure. Consequently, despite higher interest rates, savings certificates are being sold less. Due to these reasons, it may be necessary to increase the loan from the banking sector," he added.
He also mentioned that one has to pay less interest if the loan is taken from a bank, adding, "However, borrowing from the banking sector reduces liquidity in the market, which has an impact on lending to the private sector."
"Therefore, the amount of debt should be determined considering the liquidity situation in the country's economy," the economist concluded.