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Bank & Finance - November 24, 2023

BB stopped providing loan support to govt

Zarif Mahmud: In the face of widespread criticism, the central bank has finally stopped giving loans to the government by printing money. As a result, the government has relied on commercial banks and the non-bank financial sector for loans. This increases the government’s debt from these sectors.
However, overall, the government’s bank debt has decreased in the same period of the current financial year as compared to the last financial year. On the one hand development projects are less implemented due to upcoming national elections, on the other hand due to economic recession and contractionary monetary policy business activities have also been reduced. Due to these reasons, the borrowing of the government has decreased.
By printing money or borrowing from the central bank, that money goes to the market and more than doubles the money supply. It helps to increase the price of the product. As a result, the rate of inflation increases. If this rate increases, the suffering of low- and middle-income people will increase.
The loan taken by the government from the central bank is called money printing loan. Because central banks can create money. The loan was given by pledging various instruments of the government. At one stage these loans were sold to commercial banks in the form of treasury bills. Then it is identified as commercial bank loan.
In the last financial year, the government has borrowed heavily in printed money due to the decline in revenue. The rate of inflation has also increased. However, Central Bank Governor Abdur Rauf Talukdar said in a recent event that the current inflation is not due to money supply. Because the money supply is reduced at that time.
According to the report of the central bank, the government’s debt status from the central bank in September 2022 was Tk 1 lakh 28 thousand crores. In September, it decreased to Tk 71 thousand crore. During the period under discussion, the balance decreased by Tk 57 thousand crores. Its status has declined as the central bank has not lent money to the government.
The government’s debt status from the banking sector including Bangladesh Bank was Tk 2 lakh 85 thousand crore in September last year. In September, it increased to Tk 3 lakh 90 thousand crores. During the period under discussion, the status increased by Tk 1 lakh 5 thousand crores. Most of these loans have been taken by the government from commercial banks and non-banking sectors.
From July 1 to September last year, the government took a loan of Tk 11,000 crore from the central bank. From July 1 to September of this year, Tk 29 thousand 500 crores have been paid from previous loans without taking loans.
Earlier, in a letter written by the central bank to the government, the central bank asked to reduce borrowing from Bangladesh Bank. In contrast, to borrow from commercial banks and bond markets on a competitive basis. The bond market has yet to recover. Because of the complexity of buying bonds, investors are not interested in this market.
Meanwhile, the inflation rate in October 2021 was 5.70 percent. It increased to 8.91 percent in that month of 2022. It further increased to 9.93 percent in October.
However, the central bank expects this rate to come down to 8 percent by December. It could drop to 6 percent by June.
From July to September last year, the government took a loan of Tk 10,509 crore from commercial banks including Bangladesh Bank. At that time of this year, without taking a new loan, it paid off the previous loan of Tk 3,778 crore.
Tk 3,300 crore taken from the non-bank sector in July-September last year. Tk 3,500 crore taken during the same period of this year.

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