Slower execution of development projects along with a surge in the sales of savings instruments has put the government's bank borrowing at a negative territory until May last.
A rising trend in government's net bank borrowing target continues into the next fiscal year (FY) despite lower than projected borrowing made to finance the budget deficit. Until May 29, requisite repayment of the debt had outweighed fresh receipts.
The government has set a bank-borrowing target of Tk 389.38 billion for the Financial Year 2016-17. The original bank borrowing target for the outgoing fiscal is Tk 385.23 billion, according to the proposed budget document.
Such government borrowing from domestic and overseas sources is required to finance the deficit projected for the upcoming fiscal.
"Government's budgetary expenditure may rise in the FY 17 as implementation of different development projects, particularly mega ones, will be strengthened," a senior official familiar with the government debt-management activities told the FE Sunday.
The government is now implementing mega infrastructure projects like Padma Multipurpose Bridge, Deep-sea Port at Sonadia in Cox's Bazar, Payra Sea Port, Metro Rail and Rampal Power project that would help boost economic growth potential, he explained.
Besides, full implementation of the new national pay-scale may force the government to borrow more from the banking system, the official hinted.
Talking to the FE, a senior official of Bangladesh Bank (BB) said private-sector credit would not be affected by government bank borrowing at higher level, as there is enough liquidity with the banking system.
The overall excess liquidity in the commercial banks' coffers stood at around Tk 1.05 trillion as of April 7 last. But major portion of the funds has been invested in the risk-free government securities, according to the central banker.
He also said excess reserves, generally known as excess over daily minimum cash reserve requirement (CRR) with the central bank, stood at around Tk 36 billion.
"The amount of excess liquidity fell slightly during the period under review as the overall bank credit increased."
The overall excess liquidity with the commercial banks was around Tk 1.23 trillion a month ago.
Under the proposed arrangement, Tk 289.10 billion will be borrowed from the country's banking system by issuing long-term Bangladesh Government Treasury Bonds (BGTBs) while the remaining Tk 100.28 billion through auctions of short-term treasury bills (T-bills).
However, the ministry of finance has already revised downward such borrowing target to Tk 316.75 billion from the original target Tk 385.23 billion during the outgoing fiscal mainly due to slower implementation of the annual development programme (ADP).
On the other hand, government's net bank borrowing is still at a negative level, worth Tk 87.79 billion as on May 29, due mainly to higher growth in the savings certificate sales.
The government net repaid Tk 87.79 billion more than fresh borrowing from the banking system during the period under review. Such payment amount was Tk 38.47 billion in the same period of the previous fiscal, according to the latest statistics of the central bank.
"The government is still borrowing less from the banking system because of holding adequate amount of liquid money recently," another BB official said.
Currently, the government is holding around Tk 25 billion in excess liquidity in its account, according to the central banker.
"The government's bank borrowing normally increases this month mainly due to a boost in implementation of development projects across the country," the BB official explained.
However, a source close to the government's debt-management activities, said the government may not hit its revised bank-borrowing target even after using ways and means advances (WMAs) and overdraft (OD) drawing facilities by the end of the FY 16 if the existing borrowing trend continued.
The source also said the government may use WMAs and OD drawing facilities from the central bank to meet higher budgetary expenses.
The government is now empowered to borrow up to Tk 40 billion from the BB under the WMAs to meet its day-to-day expenditures without issuing any securities.
Besides, the government's limit for OD drawing from the BB was fixed at Tk 40 billion.
In the FY 15, net government borrowing target was revised to Tk 326.5 billion from the banking system from the original target at Tk 312.2 billion.
Lastly, the government had borrowed only Tk 5.14 billion from the banking system in the FY 15, the source mentioned.
Currently, three treasury bills (T-bills) are being transacted through auctions to adjust the government borrowings from the banking system. The T-bills have 91-day, 182-day and 364-day maturity periods.
Furthermore, five government bonds with tenures of two, five, 10, 15 and 20 years are traded on the money market.
