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Bangladesh - May 9, 2022

Govt borrowing from banks rises

Saving certificate sales drop

Staff Correspondent: The government has increased its borrowing from banking sources in the eight months (July-February) of the current 2021-22 fiscal year amid a drastic fall in the net sales of national savings certificates.
The government has targeted borrowing Tk 764.52 billion through treasury bills and auctioning bonds from the banking system in the entire fiscal year to finance deficits.
According to Bangladesh Bank data, sales of savings certificates subsequently dropped in the eight months from July 2021 to February 2022.
By the end of February, the government accumulated Tk 146.89 billion from selling national savings certificates. It was Tk 293.11 billion by the end of February in the last fiscal year.
As the sales of savings certificates dropped sharply, the government has to borrow more from banks for deficit financing, The government has borrowed Tk 260.77 billion from banking sources in the July-February period. The number was Tk 227.31 billion in the same period during the last fiscal.
It is mostly spending this borrowed money on debt servicing of local commercial banks, which stood at Tk 2,066.06 billion by the end of February.
In the last fiscal, the figure was Tk 1,622.89 billion by the end of February. The borrowing will increase in the coming days of the current fiscal year in line with the rebound in business and economic activities after two years of economic sluggishness due to the pandemic, according to the Bangladesh Bank.
Under the circumstances, the central bank, in a report published on Thursday, advised the government to make efforts to increase sales of national savings certificates to rein in rising inflation.

Md Serajul Islam, a spokesman for Bangladesh Bank, told that though the rate of bank borrowing is still under the target, the government can reduce it more by making efforts to sell more savings certificates.

“We believe the inflation rate might come down with increased sales of saving certificates,” he said.

By the end of March, the inflation rate stood at 6.22 percent. The government aims to keep the inflation under 5.3 percent in the current fiscal.

Serajul also said that private sector credit growth stood at around 9 percent so far against the budgetary target of 14.8 percent in the current fiscal year.

Since borrowing from banking sources is less costly for the government than the cost of raising funds through the sales of savings certificates, the government took a number of budgetary and taxation measures to contain the high sales of savings certificates in the current fiscal.


Not every economist supports the idea though.

Economist Zaid Bakht, chairperson of the state-owned Agrani Bank, does not believe government measures had anything to do with the drop in sales of saving certificates.

Rather, he believes, the introduction of a maximum limit and making the attachment of national identification documents mandatory during the sales of savings certificates are the main reasons for the sharp decline.

“People did not want to reveal their income while buying savings certificates. The trend was they used to buy them under their family members’ names, even using pseudonyms. Making NID mandatory during sales forced buyers to stop purchases,” he said.

The total net loan amount from internal sources as of February this fiscal stands at over Tk 6,092.32 billion. It was Tk 5,348.13 billion by the end of February in the last fiscal.

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