Government bank borrowing this fiscal also goes ballooning as the amounts for the first two months doubled to Tk 750.24 billion compared to the corresponding period in 2022-23, stoking inflation fears.
The gross bank borrowings in the past two months, thus, marked a 99.4-percent rise from the gross figures of the July-August 2022 period, according to the central bank's treasury statistics.
In the meantime, the government issued a debt calendar for borrowing from the banking system for this month (September 2023) worth Tk 320.5 billion.
However, the sovereign loans from the banking system consist of receipts from both primary dealers and the central bank's 'devolvement' mechanism. The central bank takes money once the rates of interest placed by primary dealers are higher than expected-and this bail-in is called 'devolvement' in banking parlance.
People familiar with the developments at the central bank told the FE that sluggish revenue performances forced the government to borrow higher from the banking system.
They, however, said this year's two-month borrowings had greater reliance on the central bank instead of commercial banks.
"Now there is liquidity stress on some banks, especially the shariah-compliant banks, so much development by the central bank is good in the sense that it does not impact banks' liquidity," says one senior official of the Bangladesh Bank.
"And they have opportunity to invest in the private sector."
The central banker, however, said the devolvement will decline when the banks will have adequate funds. Banks usually invest in such securities as the returns are safe or risk-free here.
He, however, said this year's borrowing is showing upswing as maturity of many bills and bonds may happen.
Dr Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh or PRI, fears higher borrowing from the central bank will create inflation in the economy.
"The central bank is printing money to lend to government. This fresh money is coming to the market. This will stoke inflation," the economist explains the domino effect of the 'high-powered' money.
If the government borrowed from banks, there would not have much effect on inflation. There is concern about the composition of debts, he says.
Dr M. Masrur Reaz, chairman of Policy Exchange of Bangladesh, told the FE that the gross borrowing is higher mainly due to revenue shortfall and stubbornly higher inflation.
"There are many government projects which need procurement of foods. The prices of such commodities jumped, leading to higher borrowing for such projects."
He also notes that the local currency has continuously been depreciating against the US dollar, leading to higher prices of imported goods.
However, the government net borrowing in the past fiscal year was over Tk 1.01 trillion against the revised target of Tk 1.15 trillion. The government has estimated funding at Tk 1.324 trillion from the banking system this fiscal year.
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