Government's borrowing from the banking system continues to rise as it has taken fresh Tk2,154 crore loans in February to take the eight months' figure to Tk52,137 crore, up over 10 percent from the fiscal year's target.
A massive revenue shortfall – Tk37,497 crore in the first seven months -- has forced the government to take money from banks, posing a threat to crowd out private sector credit.
Amid this situation, the Bangladesh Bank in January increased the government borrowing target from 24 percent to 37.7 percent for the second half of the current fiscal year.
Data shows at the end of February, the government's net borrowing from the banking sector stood at over Tk160,000 crore.
The aggressive borrowing by the government from the banking system has mainly contributed to the public sector credit growth.
The central bank does not want to restrict the government borrowing because banks are reluctant to give loans to the private sector amid the single-digit interest rate move.
The private sector credit growth also continued its downward trend reaching 11 years' low at 9.20 percent in last January.
A senior executive of a private bank said now banks prefer to invest in government treasury bills as interest rate on this instrument went up to 9 percent amid borrowing pressure.
"The current trend of high government borrowing and low private sector credit growth will continue as the single-digit interest rate regime will come into effect from April 1," he added.
The banks have already started releasing their high cost deposits and shrunk lending activities as they have planned to implement the single digit in line with the government's instruction.
During the first seven months of the current fiscal year, national savings' net sales were Tk7,673 crore, which is 28 percent of government's fiscal year target – Tk27,000 crore.