Govt wants to borrow Tk 62,000 crore from banking net in June

Syed Nasir Hossain: June is the last month of fiscal year. In this month, the government has to pay a large part of the development expenditure bill. But the government does not have enough money. So, a huge amount of money has to be borrowed from the bank. Only this June, the government wants to take a loan of about Tk 62 thousand crores from the bank sector. As a part of this, a loan of around Tk 8 thousand crore was taken on Monday through the treasury bill. Another Tk 6,000 crore treasury bond auction held on Tuesday.
Bangladesh Bank calls auction of treasury bills every Sunday to provide short-term loans to the government. And to provide long-term loans, the auction was called on Tuesday. A target of borrowing Tk 43,200 crore from the market has been set through four auctions of treasury bills in this June. Another Tk 18,500 crores of debt will be taken through treasury bond auction. Treasury bills have tenors of 91 days, 182 days and 364 days. Out of this, the maximum loan of Tk 20 thousand crore will be taken through 91 days term bill. And treasury bond tenure is 2, 5, 10, 15 and 20 years. In total, the government aims to borrow Tk 61,700 crore through treasury bills and bonds in June.
Officials of the relevant department of Bangladesh Bank said that the target was to withdraw Tk 10,800 crore from the market yesterday through various term treasury bills. But it was not possible to withdraw the money according to the target in the auction. Even with 11.65 to 12 percent interest, it has been possible to sell bills worth about Tk 8 thousand crore. In view of the overall situation of the banking sector, the provision of such amount of loans is also a big event.
Bank executives, however, say that the banking sector does not have the capacity to lend such amount to the government this month. Eid-ul-Azha is likely to be on June 17. The demand for cash in the market will increase around Eid. In this situation, Bangladesh Bank has to print new money like the last financial year to ensure the loan according to the government’s demand.
By reviewing the data of Bangladesh Bank, it can be seen that the growth of loans in the country’s banking sector is still higher than that of deposits. Till last March, the growth of deposits in the bank sector was 9.98 percent. In the same period, the growth of credit was 12.14 percent. This disparity between deposit and credit growth has been going on for several years. Most of the country’s banks are suffering from liquidity crisis due to non-receipt of deposits as expected. This crisis, which has been going on for almost three years, has now become more intense.
Most of the banks in the country are taking short-term loans from Bangladesh Bank through various means including repos to meet their daily transactions. Most of that loan taken at 8.5 percent interest is again being used to lend to the government by buying treasury bills. In that case banks are getting 3 percent interest margin without any risk or effort. Meanwhile, the interest rate on treasury bills has gone up to 12 percent. And Treasury bond interest rate has risen to around 13 percent. Due to the increased demand for government loans, there is a possibility that the interest rate of treasury bill-bonds will increase by 1-2 percent this month.
Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank (MTB) said that the banks are buying treasury bills with the loan taken in repo. He told, “Economic activities have decreased in the country. Due to this reason, loans can’t be increased in the private sector. There is not much new investment in the private sector due to various reasons including dollar crisis, global instability. There is also liquidity crisis in banks. For this reason, we are taking loan from Bangladesh Bank on repo at 8.5 percent interest. A large part of it is being used for lending to the government. If the government increases borrowing from the banking sector this month, the amount of repo lending from Bangladesh Bank will also increase, he said.
Interest rates are also increasing in line with the increase in government borrowing from the banking sector. Even two years ago, the interest rate on 91-day government treasury bills was less than 2.5 percent. The interest rate of this short-term loan is now 11.65 percent. If the term is longer, the government has to charge more interest to take the loan. Banks now find it more profitable to lend to the government than to the private sector.
According to the data of Bangladesh Bank, the average interest rate of 91-day treasury bills in December 2021 was 2.36 percent. It has increased continuously and reached 11.65 percent in this June. Accordingly, the interest rate of the bill with the shortest term has increased by 393 percent or almost five times. The interest rate on 182-day Treasury Bills increased by more than 260 percent. In December 2021, the average interest rate on six-month treasury bills was 3.19 percent. Yesterday it increased to 11.80 percent. The interest rate on one year or 364 days Treasury Bills increased by 249 percent. In December 2021, the interest rate of the highest term bill was 3.44 percent, but now it has increased to 12 percent.
Along with the yield rate or interest rate, the debt position of the government using treasury bills has also increased more than three times. According to the data of the central bank, the debt status of the government taken through treasury bills in December 2021 was Tk 62,150 crores. At the end of December 2023, the debt status stood at Tk 1 lakh 36 thousand 210 crores. After that, the amount of the government’s debt has not been disclosed by the central bank. Despite contacting several parties concerned yesterday, no information was received in this regard.
However, according to the data of Bangladesh Bank, the amount of debt taken by the government through treasury bills and bonds in January this year was Tk 26,223 crores. The amount of loans taken in February stood at Tk 33,452 crores. The government took a loan of Tk 36,639 crores in March and Tk 35,817 crores in April. In the last month of May, the government has borrowed another Tk 33,560 crore through treasury bills and bonds. Out of this, Tk 25,720 crores are taken through treasury bills. The remaining Tk 7,840 crores have been taken through bonds. The government paid off the debt of Bangladesh Bank with a part of the loan taken from the commercial banks.
Economists say the government itself is stuck in a vicious cycle of debt. Last year, the central bank gave loans to the government by printing money. This time, the interest rate on treasury bills has risen to such a high level because of its inability to do so. The government is now the largest consumer in the country’s banking sector. Inflation will not come down if the government continues to borrow at high interest rates. The government’s financial crisis will become more severe while repaying this high-interest loan. Then the government will have to pay off the debt with higher interest loans.
Economist Dr. Ahsan H Mansur feels that the way the government is getting stuck in the vicious cycle of debt, it is very difficult to get out of it. He told, “Despite the revenue deficit, the government is announcing a huge budget every year. Borrowing from domestic and foreign sources to meet the budget deficit. At the moment there is no money in the currency market. Due to this, the government is forced to take loans at high interest rates. The government’s crisis will intensify due to borrowing at such a high interest rate. The government is taking short-term loans at 12 percent interest. But the policy interest rate of the central bank is 8.5 percent. Government is now the biggest consumer of banks. Bank executives can “sleep with oil in their noses” by lending to the government. Banks now have no need to lend to individuals. It is only necessary to see the business of the stakeholders of the directors.
The economist said, “Last year, the central bank overprinted money and gave loans to the government. That debt helped fuel the country’s inflation. Now the central bank is saying that they will not print new money. That means the amount of loan taken by the government from the market will be around one and a half lakh crore. The amount of deposits that will increase in the bank sector will go to the government’s debt. So, what will the private sector get here?’
To meet the budget deficit, the government has set a target of taking a loan of Tk 1 lakh 32 thousand 395 crore from the banking sector in the current financial year 2023-24. However, the reality is that you may have to borrow more than the target. The growth of deposits in the country’s bank sector is below 10 percent. That is, if the deposits in the banks increase by Tk 1.5 lakh crores in the current financial year, the government will have to pay almost the same amount of debt.
The government, which is in financial crisis, is not able to pay the subsidies of various sectors including electricity and fertiliser. For this reason, the Ministry of Finance has taken the initiative to pay the subsidy through special bond issue. In the meantime, more than Tk 20 thousand crores of bonds have been issued against the arrears of subsidy on electricity and fertiliser. Another Tk 7 thousand crore bonds are under process. Banks of the country are subscribing these bonds without getting cash.
Former Finance Secretary Mohammad Muslim Chowdhury feels that the government must reduce expenditure in the current situation. He told, “The government and the central bank have set inflation control as the main goal. For this reason, apart from increasing the policy interest rate, the bank has taken the initiative to control the supply of liquidity in the market by increasing the loan interest rate. But we see that the government itself is taking high interest loans from the banking sector to meet the expenditure. If such borrowing is not stopped, inflation and liquidity situation will not be normal. In the current situation, the government must reduce its expenditure. Unnecessary development projects, projects like buying new cars should be stopped. Along with reforming the government’s fiscal policy, income should be increased.
According to the data of the debt bulletin published by the finance department, the total debt amount of the government at the end of December 2023 stood at Tk 16 lakh 59 thousand 334 crores. Out of this, Tk 9 lakh 53 thousand 814 crores from local sources and Tk 7 lakh 5 thousand 520 crores of foreign sources have been taken as loans. Out of internal sources, a loan of Tk 392,521 crore has been taken from the banking sector. The government has taken this loan from the banks through treasury bills and bonds.
Expenditure targets in the interest sector are fixed by the government in the budget of every fiscal year. In the current fiscal year 2023-24, the government has allocated Tk 94,376 crore for the interest sector. In the first half of this, Tk 50,223 crore have been spent in this sector. Due to the increase in the interest rate of treasury bill-bonds and foreign loans, the government’s expenditure in the interest sector will exceed Tk 1 lakh 10 thousand crore by the end of the fiscal year, said the officials.