Long-term borrowing to get priority

FE Team | Published: July 02, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

Siddique Islam
The government has changed its debt management strategy, preferring long-term borrowing instead of short-term one, aiming to facilitate its development works across the country, official sources said.
Under the new strategy, the government will borrow for longer tenure issuing different bonds to slash its cost of fund as well as reducing dependency on overseas assistance.
The government has already set a borrowing target of Tk 72.53 billion from the country's banking system to finance the budget deficit for the fiscal 2007-08.
As a part of the strategy, the government has decided to borrow Tk 50.56 billion from banking system issuing bonds of different tenure.
During the current fiscal, the government has set the target of short term borrowing worth Tk 29.61 billion through four categories of treasury bills.
"The government borrowing through long-term bonds, in addition to meeting budget deficit, is aimed at activating the country's secondary bond market," a senior official of the Bangladesh Bank (BB), told the FE Sunday.
He also said the government has already taken measures for long-term borrowing that might be able to help its development works across the country.
Currently, four treasury bills (T-bills) are being transacted through auctions to adjust the government borrowing from the banking system.
The T-bills have 28-day, 91-day, 182-day and 364-day maturity periods.
The central bank earlier dropped the two-year tenure T-bill from its auction system in line with the cash and debt management committee's recommendation.
Currently, a high-powered committee on cash and debt management, headed by the finance secretary, is working on the separation of the cash management from that of the public debt management.
Sources, however, said the interest rates on some short-term T-bills are likely to be increased slightly in the near future to curb inflationary pressures on economy while the interest rates on long term government approved securities might be slashed.
"The deduction of interest rates on long-term securities will be able to help the country's overall production that also helps generate job opportunities," another BB official told the FE.
He also said the central bank may increase the interest rates on short-term securities in line with the existing cautious monetary policy.
On the other hand, the market players are closely observing the new public debt management strategy, saying that it is difficult to make any comment on the possible impact of the measures on the money market.
"We are closely observing the matter," a senior treasury official of a private commercial bank said, adding that the new strategy may help bring dynamism in the secondary bond market.
The government, however, borrowed Tk 8.00 billion from the banking system though the auctions of different T-bills Sunday, first working day of the current fiscal. It included Tk 1.07 billion and Tk 600 million devolved to the primary dealers (PDs) against 90-day and 364-day bills respectively.
For the first time, fund against the T-bills was devolved to the PDs instead of that to the central bank.
The BB earlier amended its rules to allow the PDs to get the devolved fund.
"We will try to dispatch the devolved amount to other banks, non-banking financial institutions (NBFIs), insurance companies and individuals," a PD told the FE.
He also said the measure will help strengthen the activities of the secondary market.