Govt bank borrowing falls by Tk25,000cr in 2 years

Posted by BankInfo on Wed, Jul 12 2017 10:59 am

The government repaid loans worth Tk19,629 crore during the year which ended on June 30

Bangladesh government’s borrowing from the banking system has declined by around Tk25,000 crore since fiscal year 2014-15, according to the latest Bangladesh Bank data.

At the end of the fiscal year 2016-17, the total amount of the government loans from banks stood at Tk90,660 crore compared to Tk1,15,000 crore at the end of the FY2014-15.

The data showed that the government did not take any loans during the last fiscal year against its borrowing target of Tk38,338 crore. Instead, the government repaid loans worth Tk19,629 crore during the year which ended on June 30.

The government was set to borrow Tk28,203 crore from the banking system to meet the possible budget deficit of the current fiscal year’s budget. The government fixed a budget of Tk4,00,266 crore for the current FY2017-18.

Usually, the government borrows from the central bank and other commercial banks to meet budget deficit. The government also sell saving certificates to meet the deficit. But the saving instruments are now costlier than bank borrowing.

The government can take short-term loans from banks at 2.86% interest rate and long-term loans at less than 7% interest rate, but it is paying 11.04%-11.76% interest rates against saving certificates.

According to banking sector analysts, the government borrowing from banks has decreased due to the rise in the sale of saving certificates.

According to the latest data of National Savings Department (NSD), from July to May of the concluded fiscal year, the government had sold saving certificates amounting to Tk46,967 crore while the target set for the fiscal year was Tk19,610 crore.

In May 2017, the sale of saving certificates amounted to Tk4,869 crore, a figure that was Tk1,264 crore higher than the amount a year ago. The saving instruments sold in May, 2016 were worth Tk3,605 crore.

In May 2017 alone, the government sold NSC of Tk4,869 crore while the sales in June were expected to be doubled, the NSD officials apprehended.

Experts suggest the government borrow from banks as the option is more cost-effective than saving certificates to meet the budget deficit.

They slammed the government for its reliance on the sale saving certificates to meet budget deficit.

“If you look at the bank loan interest rates, they are almost half the rate of the saving certificates,” Biru Paksha Paul, former chief economist of Bangladesh Bank, told the Dhaka Tribune.

Paul said dependence on the NSC over bank borrowing is “destructive” for the government.

He also emphasised that the government should decrease the interest rates against saving certificates and borrow from banks to address the budget deficit.

news:dhaka tribune/12-jul-2017
Posted in Banking, News