The government has planned to borrow Tk 40 billion more than the amount targeted originally from the banking sector to meet its budget deficit during the current financial year (2013-14).
The bank borrowing by the government may now touch Tk 300 billion this fiscal year, it is estimated.
The government would mobilise the amount mainly through the sale of treasury bills and treasury bonds in May and June, sources at the finance division told the FE Thursday.
"We've planned to borrow an extra amount of Tk 40 billion in May and June next to meet the additional expenditure in the current fiscal year," said a senior official working at the Cash and Debt Management Committee (CDMC) of the Finance Division.
The budget deficit has widened following revision of the Annual Development Programme (ADP) outlay to Tk 600 billion in the current fiscal.
However, top banking executives told the FE that the borrowing would not create any adverse impact on the financial sector.
Ali Reza Iftekhar, Managing Director and Chief Executive Officer at the Eastern Bank Ltd, said: "Right at this moment we've adequate liquidity and we'll not feel any strain and lending to the private sector is poor."
But he said if the import peaked up, then the banking sector would face a problem.
He also said providing loans to the government through bills and bonds do not fetch any higher rate of interest for the banking sector.
"If we lend to the private sector, we will get interest at the rate of 13 or 14 per cent. In the case of government, we will get hardly 11 per cent," Mr. Iftekhar, also chairman at the Association of Bankers, Bangladesh (ABB), told the FE.
The government pays interest at the rate of 11 per cent for borrowing from the banking sector.
Mr Nurul Amin, a former managing director at the private NCC Bank said: "In my view, this will not affect the financial sector as the banking sector presently has the liquidity to the tune of around Tk 220 billion."
However, many economists believe that the government will not be able to utilise such a big outlay of expenditure within the last two months of the current fiscal year.
Mr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI) said the government would not be able to spend such a big amount of money in two months.
"Expenditure, however, will remain much lower than what is now being envisaged," hinted Mr Mansur, a renowned financial economist. But official sources at the CDMC told the FE that they would not keep the money idle after borrowing.
"We'll pay previous instalments, if the annual development programme implementation rate becomes low," a CDMC official said.
He said the higher amount of bank money would hike the government's spending on interest payment.
He also said they would mainly focus on the treasury bill and treasury bonds.
"We are expecting that the borrowings through bills and bonds will be equal," he said.
Treasury bills have maturity periods of 28-days to 365 days and bonds have long-term maturity periods up to 20 years.
The finance division official said if the scheduled banks failed to provide the amount, then the government would borrow from the central bank through different borrowing tools.
The source said the CDMC officials were now waiting for the fresh auction calendar for the next two months to be prepared by the Bangladesh Bank.
The auction takes place each week at the central bank.
Finance division officials said they would just raise the volume of money in each auction to meet its enhanced borrowing target.
"We'll not ask the Bangladesh Bank to raise the number of auctions to borrow the extra money, we'll just raise the volume for each auction," a CDMC official said.
However, the government is expecting a good amount of money to be raised by selling savings instruments this fiscal year.
"We're expecting to get around Tk 3.0 billion extra from the savings instruments," he added.
However, the National Board of Revenue is likely to mobilise revenues to the tune of Tk 1250 billion for the current fiscal year, Tk 110 billion down from the target, following restive politics, especially during the last October-December period.
