The government borrowed nearly Tk 280 billion from the country's banking system in more than 100 days of the current fiscal year (FY) to meet the budget deficit, partially.
A falling trend in sales of national savings certificates along with a shortfall in revenue collection has led to higher bank borrowing by the government during the period under review, officials said.
Meanwhile, the government's aggregate net bank borrowing stood at Tk 276.34 billion, which was more than 58 per cent of the total target, as of October 21 of FY 2019-2020, according to a Bangladesh Bank (BB)'s confidential report.
Of the total, the government borrowed Tk 256.88 billion from the scheduled banks using treasury bills (T-bills) and bonds, and the remainder Tk 19.46 billion from the central bank.
"The government's higher bank borrowing may continue in the coming months if the falling trend in sales of national savings instruments persists," a senior official familiar with the government debt-management activities told the FE on Monday.
In the first quarter of this fiscal year, sales of four popular savings instruments was Tk 90 billion, a 59.4 per cent decline compared to that of the same period a year earlier.
The official also said lower revenue collection than the target has also pushed up the government's bank borrowing during the period under review.
Revenue collection by the National Board of Revenue fell by Tk 93.17 billion to Tk 296.20 billion in the July-August period of FY'20 as against the target of Tk 389.37 billion.
The volume of borrowing may increase by a big margin in December as the government will have to pay more than Tk 100 billion against maturities of its securities particularly T-bills, according to the official.
He said the government faced a negative balance worth Tk 16 billion few days back in its cash that has already been met by using ways and means advances (WMAs) facility from the central bank.
Meanwhile, the limits of the government's short-term borrowing from the central bank have been raised by 50 per cent to avoid mismatch in cash management by the government.
Under the amended rules, the government will be able to borrow up to a maximum amount of Tk 60 billion from the central bank of Bangladesh without issuing any securities.
Earlier, the government could borrow maximum Tk 40 billion as short-term loan from the BB under the head -- WMAs -- to meet its day-to-day expenditures.
Similarly, the limit of overdraft (OD) drawing from the central bank has already been re-fixed at Tk 60 billion from Tk 40 billion earlier.
"The new limit of both WMAs and OD has been set, considering the size of the budget as well as the country's growing economic activities," another official said.
Both limits of the government's short-term borrowing have been revised after more than six years, according to the official.
He also said the government has not availed OD facility from the BB in recent days.
Market operators, however, observed the market situation while maintaining a 'wait-and-see policy'. But they did not rule out the possibility of crowding-out effects on the market if the government's high bank borrowing continues.
"We're now following a 'wait-and-see policy' to keep a tab on the trend of different key indicators including net sales of national savings certificates, private sector credit growth and current account balance for next few months," Syed Mahbubur Rahman, chairman of the Association of Bankers, Bangladesh (ABB), told the FE on Monday.
Credit growth particularly in the private sector will pick up in the coming months for achieving 8.20 per cent GDP (gross domestic product) growth by the end of this fiscal, according to the senior banker.
Mr. Rahman, also managing director and chief executive officer of Dhaka Bank Limited, said the crowding-out effects may keep going if the government borrowing from the banking system increases significantly in the coming months to meet its budget deficit.
Talking to the FE, another senior executive of a leading private commercial bank urged the central bank to play its due role in ensuring adequate supply of liquidity to the market so that banks are able to finance more projects in different sectors particularly productive ones.
"It will be helpful for the overall economy," the private banker noted.
The government had already targeted higher borrowing from the banking system to finance the budget deficit partly for the FY '20.
Its bank borrowing is set to be Tk 473.64 billion for the FY '20, up from Tk 308.95 billion in the previous year, according to the budget documents.
Under the arrangement, the government will borrow Tk 280.94 billion by issuing long-term bonds while the remaining Tk 192.70 billion will come from T-bills.
Currently, four T-bills are being transacted through auctions to adjust the government's borrowings from the banking system. The T-bills have 14-day, 91-day, 182-day and 364-day maturity periods.
Also, five government bonds with tenures of two-year, five-year, 10-year, 15-year and 20-year are traded on the market.
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