In the first four months of the current financial year, the government's borrowing from commercial banks has increased by Tk 31,774 crore. However, during this time, the government has repaid nearly the same amount of debt to the Bangladesh Bank (BB). This decision was made to control inflation, according to central bank sources.
The BB report reveals that the government's total bank debt stood at Tk 3,93,714 crore at the end of October, compared to Tk 3,93,778 crore at the end of last June 30. According to this data, the government's net bank debt in the first four months of the financial year decreased by Tk 64.22 crore. During this period, the balance of loans taken from commercial banks stood at Tk 2,67,912 crore, which was Tk 2,36,138 crore at the end of June 30.
On the other hand, the balance of loans taken from BB in the last four months stood at Tk 1,25,801 crore, compared to Tk 1,57,677 crore at the end of June 30. As a result, the government's debt from BB decreased by Tk 31,838 crore.
Economists have pointed out that when the government borrows more from commercial banks, there is a risk that private sector entrepreneurs may be deprived of necessary loans. Additionally, the interest rates on bank loans are likely to increase, discouraging reckless investments.
In this regard, Dr. Zahid Hussain, former chief economist of the World Bank's Dhaka office, told The Daily Messenger, “Due to the ongoing dollar crisis and political uncertainty ahead of the upcoming parliamentary elections, the demand for loans in the private sector is relatively low in the current financial year. Furthermore, due to the increase in defaulted loans, banks are showing more interest in lending to the government rather than the private sector.”
He added, “Besides, the central bank also aims to withdraw liquidity from the market due to high inflation in the country. Consequently, Bangladesh Bank has completely stopped lending for the last two months. As a result, government borrowing from commercial banks is increasing.”
According to the Central Bank, even at the beginning of the current financial year, the government was provided a loan by overprinting money. However, BB did not provide any loans by overprinting money for two consecutive months in September and October.
In other words, while there was devolvement of treasury bills and bonds in July and August, no devolvement occurred in September and October. During this time, debt amounting to Tk 22,673 crore matured for treasury bills, which was paid. The net devolvement status decreased, even though the total devolvement status increased during this time.
BB has completely stopped lending to the government by printing money for the last two months to control inflation. As a result, the net development status of the central bank is decreasing. Moreover, to reduce market liquidity, the central bank's previous debt is being paid off by taking loans from commercial banks, causing the government's net bank debt to trend negatively.
Meanwhile, BB has been seeking advice from economists since last September to address the ongoing economic crisis, including controlling inflation. Several top economists have already been consulted, and almost all of them advised against printing money and providing loans to the government.
Mezbaul Haque, Executive Director and Spokesperson of Bangladesh Bank, told The Daily Messenger, “Last financial year, much of the government's debt was towards the central bank and was printed as new money, which contributed to inflation. However, we have now discontinued this practice.”
He also mentioned that increasing the high-power money supply would raise inflation. For this reason, no loans were given by the government through devolvement in the last auction. The government must borrow from commercial banks, and banks will provide as much as they can.
It's important to note that the government's borrowing target from the banking system for the current financial year is Tk 1,32,395 crore. Out of this, a long-term loan of Tk 86,580 crore and a short-term loan of Tk 45,815 crore will be obtained.
Last financial year, the government took a record loan of Tk 1,22,980 crore from the banking system. Of this, the central bank directly provided Tk 97,684 crore, which was printed as new notes. In that financial year, the total balance of treasury bills and bond devolvement by the central bank was higher, about Tk 1,26,917 crore. However, the net devolvement amount stood at Tk 79,755 crore due to the repayment of government debt upon the maturity of several treasury bills and bonds.
Messenger/Disha
