Govt borrows Tk 690b from banks in H1 for deficit financing

Government borrowings from scheduled banks swelled over Tk 690 billion in the first half (H1) of this fiscal for deficit financing but its net debt dropped to over Tk 146 billion after repayment.
The ministry of finance borrowed Tk 690.54 billion from all the scheduled banks through issuing treasury bills and bonds during the July-December period of the current fiscal year (FY), 2024-25, while Tk 544.14 billion was paid into the central-bank coffer, according to a confidential report prepared by the Bangladesh Bank (BB) on government borrowing from the banking system.
Actually, the government borrowed the money from the scheduled banks during the period under review partly to meet budget deficit, officials said.
However, the net bank borrowing of the government was deficit Tk 32.86 billion in the same period of the FY'24, according to the official figures.
"The government bank borrowing has increased significantly during the period under review mainly due to lower revenue mobilization in recent months," a senior official familiar with the government debt-management activities told the FE Wednesday.
Meanwhile, overall revenue collection fell 2.62 per cent year on year to Tk 1301.85 billion in the July-November period of the FY'25.
The National Board of Revenue (NBR) was Tk 388.30 billion behind its collection target at Tk 1690.15 billion for the first five months of FY'25, with its end goal set at Tk 4800 billion for the year.
The official also predicts that the government borrowing from the banking system is expected to increase further in the coming months.
"The government has borrowed mainly from the scheduled banks to avert injecting fresh funds by the central bank into the market by printing money to curb inflationary pressure on the economy," the official said while explaining the switch in deficit financing under the current interim government.
However, the outstanding figures of ways-and-means advances (WMAs) facility stood at Tk 79.37 billion while overdraft (OD) drawing facility was zero.
The government is now empowered to borrow up to Tk 120 billion from the central bank under the WMAs for day-to-day spending without issuing any securities.
In addition, it is entitled to borrow a maximum of Tk 120 billion through OD drawing facility from the central bank for the same purpose.
"The interim government is likely to cut its bank-borrowing target in the near future through squeezing the overall budget deficit," another official told the FE while replying to a query.
The government is going to narrow its budget deficit through slashing its expenditures and enhancing revenue mobilizations, the official explains the finance arithmetic.
The net state borrowings from banks are set to be Tk 1375.00 billion (1.37 trillion) for the FY'25 in a rise from Tk 1323.95 billion in the previous year, according to the budget documents.
However, the government revised upward its bank-borrowing target to Tk 1559.35 billion from the proposed Tk 1323.95 billion for the past FY '24. But the net government borrowing from banks was Tk 942.82 billion by the end of FY '24.
Under the arrangement, the government will borrow Tk 726.82 billion by issuing long-term bonds while the remaining Tk 648.18 billion through treasury bills (T-bills).
Currently, four T-bills are being transacted through auctions to adjust the government borrowings from the banking system. The T-bills have 14-day, 91-day, 182-day and 364-day maturity periods.
Furthermore, five government bonds, with tenures of two, five, 10, 15 and 20 years respectively, are traded on the money market.
On the other hand, all the scheduled banks now prefer to invest their excess funds in government securities because of better returns and safety, according to a senior executive of a leading private commercial bank.
"Lower demand for credits particularly from the private sector has also pushed up investment in the risk-free government securities," the private banker notes.

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