Due to lower revenue collection, the government has almost doubled its borrowing from commercial banks in the first quarter (July-September) of the current fiscal year.
According to a report from the central bank, the government raised Tk47,209 crore by selling various tenures of treasury bills and bonds during this period.
In comparison, at the end of the same period in the previous fiscal year, the government's borrowing from commercial banks stood at Tk24,474 crore. Over the span of one year, government borrowing from commercial banks has surged by nearly 93%.
However, the central bank clarified that the government primarily used the borrowed funds to repay its debts to the central bank.
In the first three months of the current fiscal year, Tk42,794 crore was repaid to the central bank, compared to Tk30,378 crore repaid in the same period last year.
As per the central bank’s report, at the end of July-September this fiscal year, the government's net borrowing from the banking sector increased by Tk4,415 crore.
In contrast, during the same period last year, the government's borrowing had decreased by Tk5,904 crore.
A senior central bank official explained that, as part of the contractionary monetary policy, the central bank is reducing the supply of money in the market.
In this process, liquid money is being returned to the central bank from commercial banks.
Such measures have been effective in controlling inflation. Additionally, the number of days banks can borrow from the central bank through the repo mechanism has been reduced.
Now, banks can only borrow twice a week through repo; previously, they could borrow every working day.
Dr Zahid Hussain, former chief economist of the World Bank's Dhaka office, pointed out that although revenue collection has fallen short of targets, the government had to increase borrowing from the banking sector to meet operational costs such as public servants' salaries and debt interest payments.
Banks are borrowing at low-interest rates from the central bank and investing in treasury bills and bonds.
He stressed the importance of ensuring proper use of the loans taken from the central bank.
If a bank faces a liquidity crisis, it will naturally borrow from the central bank.
However, if the borrowed money is used for business purposes, it could lead to problems.
He urged the central bank to enhance its oversight in this regard.
To reduce government borrowing from the banking sector, Dr Zahid Hussain suggested that the government needs to reform its expenditure management and revenue mobilisation processes to control spending and increase income.
