The government’s net bank borrowing has risen sharply due to lacklustre tax collection, slow private sector credit growth and the overall economic slowdown since the political changeover in August last year.
Net bank borrowing is calculated based on the amount that the government has taken from banks subtracted by that repaid to Bangladesh Bank.
Until January 22 of FY25, net bank borrowing by the government stood at Tk 15,759 crore, up from a balance of negative Tk 778.30 crore during the same period of the previous fiscal year, as per the latest data from the Bangladesh Bank.
However, the government’s borrowing from commercial banks rose at a slow pace when compared to the target for FY25, which was set at Tk 137,500 crore.
Central bank data illustrated that the government borrowed heavily from commercial banks, taking out around Tk 74,420 crore until January 22.
In the same period, it repaid a little over Tk 58,661 crore to the central bank.
The government generally borrows from the banking system through treasury bills and bonds.
Yet, until FY24, the government borrowed directly from the central bank. However, that facility was suspended by the central bank after economists and insiders criticised the move, saying it was fuelling inflation.
Seeking anonymity, a senior central bank official told The Daily Star that the government had no option but to borrow heavily from commercial banks as the central bank had suspended lending.
He added that the private sector is not interested in taking loans now due to high interest rates and political uncertainty.
This is demonstrated by a slowdown in private sector credit growth, which decelerated to 7.66 percent in November last year, the lowest since May 2021, when it was 7.55 percent, BB data showed.
As a result of the private sector’s reluctance to borrow, banks have more funds on hand and are very interested to invest in government treasury bills and bonds.
The government has a huge demand for money, which is urgently required, said Fahmida Khatun, executive director at the Centre for Policy Dialogue.
Most public projects are stagnating now, so global donor agencies are not releasing funds, she said, adding that the government’s revenue collection had not reached the expected levels due to the disruption of business activities centring the ‘July uprising’, when a mass uprising overthrew the Awami League government.
However, the economist added that the private sector would not be affected by heightened government bank borrowing since there is little demand for loans among private enterprises at the moment.
A chief executive of a private commercial bank said the government has been unable to collect as much revenue as it had targeted while the inflow of foreign funds has also slowed, compelling it to borrow from the banking sector.
Ashikur Rahman, a senior economist at the Policy Research Institute of Bangladesh, said net borrowing from the banking sector increased due to dismal revenue mobilisation since FY24.
Even worse, during the July-December period of FY25, the National Board of Revenue collected Tk 156,442 crore, which reflected a 0.98 percent year-on-year decline.
This has only served to increase the government’s dependence on saving certificates and the banking sector as it looks for sources of funds. https://www.thedailystar.net
