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Govt’s bank borrowing marks a fall in Q1

Posted by BankInfo on Mon, Sep 17 2012 03:56 am

Monirul Alam

Government borrowing from the banking systems came down slightly in the first quarter of the current financial year, thanks to rise in fund flow from other internal and external sources, Bangladesh Bank (BB) sources said.

As of 16 September, starting from 1st of July, the government’s bank borrowing declined by Tk 24.89 billion compared to the amount on June 30, BB data shows.

BB statistics showed that the status of net borrowing of the government was Tk. 918.27 billion at the end of last fiscal, which has come down to Tk 894.53 billion.

Fiscal analysts at the central bank said the government’s dependence on the banking system to meet budgetary expenditures has been reduced due of availability of funds from other sources.

“A steady flow in mobilising tax revenues, borrowing from external sources and a ‘good sale’ of national savings certificates together helped the government to lower its dependence on bank borrowing,” said a high official, who is involved in fiscal and policy analysis of the central bank, seeking anonymity.

The official, however, noted that, “It is though ‘temporary’ but a ‘good sign’. We can not predict that the government’s needs for cash would not increase in the coming months.”

“The government might not borrow any more funds from the banking system right at this moment as the tax-revenue mobilisation is going on in ‘full swing’ in this month (September), while the trend of obtaining loans by many government agencies from external sources have been increased recently,” said the official.

The official said loans worth over Tk one billion from external sources entered the country last FY and the fund flow has spread through this fiscal. He said the committee on external loans headed by the central bank governor sat once monthly to give approval to the loans.

According to National Savings Directorate, the net sale of savings instruments was Tk 4.8 billion in FY 2011-12. During the period between July-June of FY 12, the gross sales accounted for Tk 189.55 billion and encashment against the matured ones stood at Tk 184 billion.

In mobilising income tax, the annual average growth obtained by the National Board of Revenue in last five years was above 23 percent, said the BB official adding that “It is likely to rise in the current FY.”

Meanwhile, another high official of the central bank said the government’s requirement of cash by borrowing from banks will be reduced slightly as the cost of subsidy to the state-run power and energy sectors has been projected to lowering by hike in tariffs.

“The benefit of power and energy tariff hike is likely to come from this FY,” said the official.

In FY 2011-12, government’s bank borrowing has been exceeded by Tk 26 billion to Tk 225 billion against an initial (budgetary) target for Tk 189 billion, according to BB data.

A top official of a state-owned bank said the abnormal rise in borrowing by the government from the banking system was mainly due to the cash support to some the government agencies including Bangladesh Petroleum Corporation, Bangladesh Chemical Industries Corporation and Bangladesh Agriculture Development Corporation for respective imports.

In the budget for FY 2012-13, the government has set a target of borrowing Tk 223 billion from the banking systems, if other sources of financing complied fully. Hefty bank borrowing by the government was widely criticised by different quarters throughout the entire FY 12.

Economists and leaders of the business communities have been opposing the government’s huge bank borrowing as it is usually creates credit dearth in the banking sector and affect the credit flow to the private sector.

Banking industry sources said the Primary Dealer (PD) banks have been suffering from acute liquidity shortage due to high borrowing of the government and could not offer adequate loans to the private sector.

Source said investment in government securities means low-profit and banks are not much interested in it. By applying the regulatory empowerment, the central bank formally arranged auctions to collect the amount of demanded borrowing by the government by maintaining an auction calendar.

Banks usually purchase Treasury Bills and Bonds by participating voluntarily in the auctions. If the voluntary participation of banks could not fulfill the required amount, the central bank then forcibly sell the T-bills and bonds to the PD banks.