Govt’s bank borrowing plunges

The government’s borrowing from the banking system declined sharply in the just-concluded fiscal year as it took on a staggering amount of debt through the sales of savings certificates and bonds.

The government managed to borrow Tk 26,078 crore from banks in fiscal 2020-21, down 64 per cent year-on-year, according to data from the Bangladesh Bank.

The revised target on loans from the banking system was Tk 79,749 crore.

But the government was forced to borrow less from the banks as many savers flocked to savings certificates and bonds due to the decline in the interest rate on deposit products offered by commercial banks.

The government is giving interest ranging from 11.04 per cent to 11.76 per cent to savers. Banks offer a 3-5 per cent interest rate on the fixed deposit receipts.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said that the government would have to bear a higher interest spending for borrowing massively through the sales of savings instruments.

The government would have been able to avoid the high-cost fund had it taken loans from banks using treasury bills (T-bills) and bonds.

The interest rate on T-bills and bonds ranged between 2.50 per cent and 8.50 per cent throughout the last fiscal year.

The low implementation rate of the annual development programme (ADP) also played a role in the fall of bank borrowing.

The development spending stood at Tk 122,231 crore in the July to May period, accounting for 58 per cent of the overall allocation.

The public borrowing from banks would have increased to some extent if the government had implemented the ADP as expected, said Mansur, also a former official of the International Monetary Fund.

The government has set a bank borrowing target of Tk 76,452 crore in FY22.