Likely rise in government borrowing

The Bangladesh Bank has published the auction calendar of Treasury Bills and Bonds for the first quarter of 2015. The government is going to borrow Tk 40 billion from the banking sector in January 2015 through auction of treasury bills and bonds including Tk 38 billion from bills and Tk 2 billion from Bonds respectively.

Meanwhile, the government will pay the banking sector Tk 57 billion in January in the form of maturity of outstanding T-bills and Bonds and approximately Tk 7.65 billion in the form of coupon interest. Therefore, the liquidity of the market will go up by approximately Tk. 24.65 billion in total which is expected to reduce the call money rate in January. The call money rate hit 8.90 per cent in December last due to the banks' tendency to disburse more loans at year-end mainly to adjust non-performing loans (NPLs).

In January 2015, 95 per cent of the auctioned amount will be coming from Treasury Bills. The auction calendar suggests that the government is not targeting employment of much fund in project implementation in January.

However, the government will need fund to complete the 192-kilometre Dhaka-Chittagong four-lane highway project which is the lifeline of the country's trade and commerce catering to well over 80 per cent of the country's exports and imports worth US$ 55 billion. In addition to that, the Joydebpur-Mymensingh four-lane upgrading project is expected to be completed in the next year whose construction work is almost half done.

The government borrowing is expected to go up further to support the construction of the 6.15 km Padma Bridge, costing an estimated Tk 91.72 billion. The government says it will help increase the GDP (gross domestic product) growth by 1.2 per cent. The construction of the main bridge is supposed to be completed by the end of 2017 or early 2018.

Considering these project implementation fund requirements, the government may go for more borrowing from the banking sector which is likely to cause crowding-out. The excess liquidity in the banking sector may no more be there. From February, yields on the Bangladesh government Treasury Bonds may show upward trend. Net Tk 33 billion will go out of the market in February which is a logical signal of more government borrowing coming ahead to implement development projects. The credit growth is likely to rise this year. This may play an important role in lowering excess liquidity in the banking sector.

In March 2015, amount going out through Treasury Bond Auction will be Tk 21 billion while amount coming to the market in the form of maturity of Bond will be only Tk 2 billion. The Treasury Bills Auction Calendar for March has not yet been published.

The writer is an associate manager in the treasury department of a private bank. [email protected]