The government has gradually changed its debt management strategy towards long-term borrowing from short-term to facilitate development activities.
Under the new strategy, the government will increase borrowing for longer tenure by issuing different bonds instead of short-term borrowing through treasury bills (T-bills).
The government has already set a borrowing target of Tk 134.98 billion from the country's banking system to finance budget deficit in fiscal 2008-09.
In fiscal 2007-08, the government borrowed Tk 72.53 billion from banking system through issuing T-bills and bonds.
As a part of the strategy, the government has decided to borrow Tk 87.75 billion from banking system by issuing bonds of different tenures.
During the current fiscal, the government also set the target of short term borrowing worth Tk 47.25 billion through auction of three categories of T-bills.
"The government has shifted its borrowing pattern aiming to bring dynamism in the country's secondary bond market," a senior official of the Bangladesh Bank (BB), told the FE Thursday.
He also said the new debt management will help the government even out its payment obligation.
"The government is now maintaining such a strategy that might help it pursue development programmes across the country," the official noted.
The central bank has already issued a circular in this connection and asked all commercial banks and non-banking financial institutions (NBFIs) to follow the new calendar of T-bills and bonds auctions for fiscal 2008-09 properly.
"We have issued the new auction calendar to the banks and NBFIs with indicative figures of the government borrowing for fiscal 2008-09," another BB official said.
A nine-member high-powered committee, headed by a deputy governor of the BB, will oversee the overall auction system that will be run on the basis of market behaviour and government's credit requirement, they added.
Currently, three T-bills are being transacted through auctions to adjust the government borrowing from the banking system.
The T-bills have 91-day, 182-day and 364-day maturity periods.
The central bank earlier dropped the 28-day tenure T-bill from its auction system in line with the cash and debt management committee's recommendation.
A high-powered committee on cash and debt management, headed by the finance secretary, is now working on the separation of the cash management from that of the public debt management.
On the other hand, four government bonds - 5-year, 10-year, 15-year and 20-year -are being traded in the markets.
Market players, however, say the new borrowing strategy will help the government carry out the long-term development plans, but the overall expenditure of the government may increase due to higher interest payments.
"The latest move helps minimise the assets-liabilities mismatch of the government," a senior treasury official of a commercial bank told the FE.
He also said the interest rates on T-bills may increase slightly in the near future, but the interest rates on government bonds remain almost static.
