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Bank & Finance - November 7, 2023

BB doesn’t give loan to govt in 2-month

No new notes printed

Zarif Mahmud: Bangladesh Bank issued loan to the government by printing a record amount of new money through development measures last financial year without responding to the advice given by the country’s economists for a long time. Inflation has increased abnormally. Therefore, Bangladesh Bank decided not to give loans to the government by printing money to control inflation. The central bank has completely stopped giving loans to the government by printing money for two months. At the end of last October, the status of net development has decreased to Tk 62392 crores, which was Tk79,755 crores at the end of June of the last financial year. This information is known from the latest report.
An official of the central bank said that the government was given a record amount of loans in the last financial year, due to which inflation increased. Therefore, it was informed that the government will not be given a loan by overprinting money in this financial year. Therefore, the government did not get loans through development in the last two months. Instead, the government has paid Bangladesh Bank.
They also said that the central bank is no longer buying the government bonds that have matured last year. Those bonds are now being bought by commercial banks. Through this, the money of the banks is flowing to the central bank. This means that the government takes loans from commercial banks and gives them to the central bank through bonds.
In the current financial year, the target of borrowing from the banking system has been fixed at Tk132,395 crores. According to the report of Bangladesh Bank, at the end of October 26, the government’s total bank debt stood at Tk 393,714 crore, which was Tk 397,293 crore at the end of June 30. Accordingly, in the first three months and 26 days of the fiscal year, the amount of net bank debt of the government stood at negativeTk 64.22 crore. At this time, the status of loans taken from commercial banks stood at Tk267,912 crores, which was Tk236,138 crores at the end of June 30. As a result, government debt from commercial banks has increased by Tk 31,774 crores. On the other hand, the bank loan taken from Bangladesh Bank at this time stands at Tk125,801 crores, which was Tk157,677 crores at the end of June 30. As a result, the government’s debt from Bangladesh Bank has decreased by Tk 31,838 crore.
Generally, if the government borrows more from commercial banks, there is a danger that the private sector will be deprived of the necessary loans. Along with that, the interest rate of bank loans is also likely to increase. This discourages reckless investment. So, economists always advise to borrow as little as possible from the banking system.
Those concerned said that due to the ongoing dollar crisis and the political uncertainty caused by the National Assembly elections, the demand for loans in the private sector is relatively low in the current financial year. Again, due to the increase in defaulted loans, banks are showing more interest in lending to the government instead of lending to the private sector. Besides, due to high inflation in the country, the central bank also wants to withdraw liquidity from the market. Because of this, the last two months have completely stopped giving loans.
According to the information of Bangladesh Bank, even at the beginning of the current fiscal year, Sarraka was given a loan by overprinting money, but the government did not give any loan by overprinting money for two consecutive months in September and October. That is, in July and August, there was development of treasury bills and bonds, but no development was done in September and October. On the contrary, during this period, the debt of Tk 22,673 crore has been paid in the maturity of the treasury bills. And in this, the status of net development is also decreasing. Although during this time the total development status has increased. According to the information received, from July of the last fiscal year to October of the current fiscal year, the total balance of treasury bills and bonds of the central bank increased to Tk146,264 crores. Its status remained the same till last August, as the central bank did not make any new developments in last September and October. However, in the last four months, a total of Tk36,710 crores of treasury bills have been paid on maturity. However, due to the development of Tk19,347 crores in the first two months of July and August, the status of net development has decreased to Tk62,392 crores at the end of October, which was Tk79,755 crores at the end of June of the last financial year.
In the last financial year also, the government took a record loan of Tk 122,980 crore from the banking system. Out of this, the central bank directly provides Tk97,684 crore rupees, which is printed in new rupees. Although the total balance of treasury bills and bond development of the central bank in that financial year was more, about Tk126,917 crores. However, due to repayment of government debt due to the maturity of several treasury bills and bonds, the amount of net development stands at Tk79,755 crores.
Bangladesh Bank has started taking the advice of economists from last September to determine what to do to resolve the ongoing economic crisis including inflation control. Several top economists have already been consulted. Almost all of these economists suggested not to print money and give loans to the government. Executive Director and Spokesperson of Bangladesh Bank Majbaul Haque said that the government’s debt was towards the central bank last financial year. A lot of new money has been created, which has taken a bit of a hit on inflation. We have already closed it. He said, creating hard power money will increase inflation. For this reason, the government has not given any loan through development in any auction. This process has also been communicated to the government. Government has to borrow from commercial banks. Banks will give as much as they can.

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