Government borrowing from banks increases as revenue collection declines

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The government more than doubled its borrowing from banking sources to fill the FY22 budget shortfall as revenue collection and the sale of savings certificates plummeted.

In FY21, government borrowing from the banking sector was Tk 26,078 crore, which was Tk 64,755 crore in FY22, which was Tk 38,677 crore more than the previous year , according to provisional data from the central bank.

The government’s FY22 domestic borrowing target was reset to Tk 1.24 lakh crore in the revised national budget, while the borrowing target from the banking system was reset to Tk 87,287 crore from Tk. The government borrowed 74.18% of the targeted amount.

The government borrowing rate at the start of FY22 was slow, but accelerated in June as revenue collection and the sale of savings certificates declined.

According to the National Board of Revenue (NBR), the government revenue collection target for FY22 was Tk 3.3 lakh crore but Tk 2.53 lakh crore was collected till May of this year, officials said. Consequently, the government increased its borrowing from the banking sector as it had to pay the arrears of the annual development projects.

The government also aimed to borrow Tk 37,001 crore, including Tk 32,000 crore through the sale of national savings schemes.

The government borrowed Tk 18,157 crore from savings certificates in the first eleven months of FY22, which was only 56.74% of the target.

Banks have increased their investments in government treasury bills as interest rates remain fixed relative to consumer loans.

Until May this year, government borrowing from banks stood at Tk 32,652 crore, which rose to Tk 64,755 crore at the end of June. The government took out almost the same amount of loan in one month as in the previous 11 months.

“The government has to pay the arrears of various development projects at the end of the fiscal year, which led to an increase in the amount of debt. Also, revenue collection was much lower,” Ahsan H Mansur, executive director of Policy Research Institute of Bangladesh told TBS.

On June 27 this year, the government borrowed Tk 5,708 crore and Tk 756 crore through 91-day and 364-day treasury bills, respectively. The interest rate on the 91-day Treasury bill was 5.99% Tk and the 364-day one was 6.66% Tk.

On June 28, the government borrowed Taka 4,724 crore from banks through 15- and 20-year treasury bills. The interest rate for the 15-year Treasury note was 8.55% and for the 20-year Treasury note it was 8.65%.

The next day, the government borrowed Tk 5,650 crore through two Treasury bills of 91 and 182 days.

Meanwhile, the implementation target for Annual Development Projects (ADPs) in FY22 was Tk 2.17 lakh crore, but Tk 1.42 lakh crore was implemented in during the first 11 months of the financial year, i.e. 65.56% of the objective.

The government has set a target to borrow Tk 1.06 lakh crore from banking sources in FY23.

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