Govt’s bank borrowing up 152pc

Government borrowing from the banking system swelled over 152 per cent year on year to Tk 253.9 billion during July-February period of this fiscal.
According to a Bangladesh Bank (BB) report, the government is now largely sourcing deficit-financing money from the central bank, and less from banks and external sources. 
Non-bank borrowing of the government from the public also decreased by more than 73 per cent (y-o-y) to Tk 46.56 billion during the period under review, says the report released recently.
People familiar with the matter in the central bank and economists told the FE that the government actually has been borrowing from the central bank that  may lead to further higher inflationary pressure on the economy.

Some central bankers, however, argue that the government borrowing from the central bank is a good decision in the sense that there will not occur any “crowding-out effect” on the economy.
“To our understanding, government borrowing from the central bank is good as the commercial banks have liquidity stress”, says one senior official of  the Bangladesh Bank. 
“There is no chance for crowding- out effect on the economy as the government is not taking money from the banking system.”
On the other hand, economists told the FE that such borrowing from the central bank amounted to nothing but printing money, impacting the economy adversely.
“This is (such type of borrowing) is absolutely equivalent to money printing,” comments Dr Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh (PRI). This is creating “high-powered money” in the economy, Dr Mansur further says.
He feels that this will adversely impact two macroeconomic indicators that Bangladesh is now in the vulnerable stages—-rate of inflation and Balance of Payment (BoP).
Now expenses are being made from two sources: from central money and the bank money.  “Such two types of expenses cannot be accepted as it is causing double counting”.
Dr. M. Masrur Reaz, chairman at the Policy Exchange of Bangladesh, told the FE: “This (such type of government borrowing) is like a double-edged sword”.
 The rate of inflation would increase further in the coming days as a result of the borrowing. Another issue is  the central bank is losing its maneuvering capacity as a result of losing its assets.
He, however, says there is no remedy for such a situation but to raise resource mobilization.
“We are in poor growth in terms of NBR taxes. So we need to raise it so that domestic borrowing becomes lower,” Dr Masrur recommends.
However, both banking and non-banking borrowings in aggregate contributed to rise in overall domestic borrowing by 9.6 per cent to Tk 300.48 billion during the period under review.
Net foreign financing, however, has decreased by 10.87 per cent (y-o-y) during the period under review.
Total deficit financing in the meantime stood at Tk 676.8 billion during the period, the BB report mentioned.
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