Negative cash-balance situation prevailing for months prompts the government to bump up emergency borrowing from central bank's Ways and Means Advance (WMA) and Overdraft (OD) mechanisms, officials said.
The Ministry of Finance (MoF) in a decision has nearly doubled the daily borrowing limit in the wake of "higher government spending" and "mounting budget deficit", they said about the move that stokes inflation fears.
Both WMA and overdraft are temporary advances given by the central bank to the government to tide over any mismatch between receipts and payments.
The finance meeting decided to send a letter to the central bank regarding the ceiling revision of the two emergency-borrowing windows, the sources said.
From now on, the government can borrow a total of Tk 300 billion daily from the two Bangladesh Bank mechanisms: Tk 150 billion from WMA and as much from OD.
Earlier, the limit was Tk 80 billion each. Until January last year, the limit had been Tk 60 billion for each of the instruments.
Data show that the cash balance of the government has been worsening since last October with a negative balance of Tk 25.36 billion from a positive balance of Tk 95.24 billion in August.
The governmental cash-balance situation fell further into negative territory worth Tk 120.91 billion at the end of December, Tk 123.67 billion at end-February, Tk 344.81 billion on April 30, and at Tk 651.39 billion on June 19, central bank data show.
Compared to June 19 last year, the cash balance eroded nearly 8 times this June that prompted the government to raise WMA and OD limits to meet the needs.
Officials say when cash balance stays in negative territory, the government needs to borrow a similar amount of money from central bank's Ways and Means Advance and Overdraft windows.
The central bank count shows that until this March, the government had borrowed Tk 534 billion from banking sector through treasury bills and bonds, slightly lower than last year's same period's Tk 551.93 billion.
Contacted Monday for his view of economic implications of the latest government borrowing arrangements, Dr Ahsan H Mansur, executive director at the Policy Research Institute (PRI) of Bangladesh, told the FE that if the higher emergency borrowing be a transitional phenomenon and repaid within a day or two, it would not do any harm to the economy.
"But if it becomes a permanent feature and gets buildup, the central bank will have to print a similar amount of money," he said.
This is defined as "high-powered money", Mr Mansur said. And if not repaid shortly, it will enhance money supply in the market and fuel inflation.
The economist notes that the size of economy is expanding and so there is logic behind enhancing the borrowing limits. However, the limit should not shoot up or double.
"From a total of Tk 160 billion it could have been increased to Tk 200 billion, not higher than that," says Mr Mansur, who had once served the IMF.
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