The government borrows from BB balloons

By on September 18, 2022 0

A file photo shows a man counting wads of taka notes in the capital Dhaka. Government borrowing from Bangladesh Bank increased to Tk 64,589 crore on September 8, 2022 from Tk 23,749 crore on the same day last year due to liquidity pressure in the banking sector. — New Age Photo

Government borrowing from Bangladesh Bank increased to Tk 64,589 crore on September 8, 2022 from Tk 23,749 crore on the same day last year due to liquidity pressure in the banking sector.

According to Bangladesh Bank data, government borrowing from the central bank was Tk 55,866.4 crore at the end of June 2022 compared to Tk 24,542.14 crore on June 30, 2021.

Consequently, government borrowing from the BB soared by Tk 8,722.6 crore in the past two months and eight days.

Out of the total amount, the government levied Tk 21,237.16 crore on treasury bill issuance and Tk 46,418 crore on treasury bills, according to data as of September 8.

Total outstanding government borrowing from scheduled banks stood at Tk 2.08 lakh crore on September 8, compared to Tk 2.14 lakh crore on June 30.

Thus, the government reimbursed the programmed banks while taking loans from the central bank.

Bankers said the country’s banking sector was facing a liquidity crunch due to slow growth in deposits against strong growth in loans and increased purchases of dollars from the central bank to cope with the currency crisis.

Thus, the government could choose the central bank to fund its spending to increase liquidity in the banking sector, they said.

Net government borrowings outstanding from the banking sector including the BB reached Tk 2.73 lakh crore on September 8, 2022 from Tk 2.70 lakh crore in June 2022. The amount was Tk 2.02 lakh crore Tk on June 30, 2021.

To finance the budget, the government borrows mainly from two domestic sources: the banking system and other non-bank domestic sources.

Government borrowing from the banking system consists of borrowing from the central bank and scheduled banks.

From the banking system, the government borrows mainly through advances, overdrafts and the issuance of treasury bills and bonds.

However, the balances of government deposits and other funds are deducted from the borrowings of the banking system.

On the other hand, government borrowing from non-bank domestic sources includes savings instruments introduced by the Department of National Savings and government treasury bills and bonds held by non-bank financial institutions, insurance and individual investors.

Government borrowing from the central bank generally puts pressure on inflation.

BB, in its latest report on domestic government borrowing, said that due to increased government borrowing, the yield curve for treasury bills and bonds had already shifted significantly upwards, which which could also create upward pressure on bank lending rates and influence the outbreak of inflation in the coming month which were undesirable from a macroeconomic stability perspective.

“Thus, the government needs to focus on prioritizing spending so that the supply of essential commodities can be sufficiently increased in the short term while limiting spending on longer-term projects. term,” he said.

From July to September 15, the BB sold $2.95 billion to banks to address the dollar shortage in the financial sector which, on the other hand, mopped up the local currency equivalent of the banking system.

Government borrowing from the banking sector was only Tk 3,4478.29 crore in FY21, which doubled to Tk 72,750 crore in FY22.

For FY22, the government aimed to borrow Tk 76,452 crore from the banking sector.