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Bangladesh - Bank & Finance - January 4, 2024

Govt now looking for loans from banks

Zarif Mahmud : Since the beginning of the current financial year, the opposite picture is seen in the government’s debt. The government has taken a record loan from Bangladesh Bank in the previous financial year. However, from the beginning of the current fiscal year 2023-24, the government has taken more loans from commercial banks instead of Bangladesh Bank. In the first six months (July-December), the government has taken a loan of Tk 27,952 crores from commercial banks. On the other hand, the loan of Bangladesh Bank has been repaid.
Such information has emerged in the latest report of Bangladesh Bank.
According to the information, the government has taken a loan of Tk 27,952 crore from the commercial banks during July-December of the current financial year. At the same time, Bangladesh has repaid Tk 35,789 crore of loans taken earlier from the bank. As a result, at the end of the first six months of the financial year, the amount of net bank debt of the government stood at negative Tk 7,846 crores. That is, the repayment amount of the old loan was higher than the new loan.
Meanwhile, in the same period of the previous financial year, the government paid Tk 19,640 crore instead of borrowing from commercial banks. During July-December of 2022-23 financial year, the government took a loan of Tk 45,161 crores from Bangladesh Bank. At that time, the net bank debt of the government stood at Tk 26,097 crores.
Earlier, there was a storm of criticism from various quarters including economists for taking more loans from Bangladesh Bank. Even Bangladesh Bank advised the government to go outside the banking system and borrow more from savings bonds.
Economists feel that in this period of high inflation, it is better to borrow from commercial banks instead of central banks. Because borrowing from the central bank means printing money. And when new money enters the market, inflation increases. So, they advised the government to take loans from commercial banks.
In the current fiscal year 2023-24, the government’s borrowing target from the banking system has been set at Tk 1 lakh 32 thousand 395 crores. Out of this, Tk 86,580 crores will be taken as long-term loans. And short term loan will be taken Tk 45,815 crores.
In the main budget of the previous financial year, the government’s bank loan target from the banking system was Tk 1 lakh 6 thousand 334 crore. However, in the revised budget, this target was increased to Tk 1 lakh 15 thousand 425 crore. However, the net amount of government’s bank loan at the time of discussion was Tk 1 lakh 22 thousand crores, which exceeded the revised target.
Meanwhile, the government’s budget deficit is increasing every year. This deficit is met from two sources. Domestic and foreign sectors. If the necessary financial support is not available from the foreign sector, the government has to rely more on internal sources. Domestic sources include the banking system and the savings sector.
Generally, if the government borrows more from the banking system, there is a danger that the private sector will be deprived of the necessary loans. Along with this, there is a risk of increase in the interest rate of bank loans. This discourages private investment. Therefore, economists have always advised to borrow as little as possible from the banking system.

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