The government鈥檚 borrowing from commercial banks increased by near Tk 50,000 crore in the last one and a half months of the 2024-25 financial year, driven by the attractive returns and low-risk nature of treasury instruments for banks.
According to Bangladesh Bank data, the government鈥檚 borrowing from banks reached Tk 65,425 crore in the July-December 18 period, significantly up from Tk 16,401 crore in the July-October period.
During this period, it repaid Tk 44,479 crore to the Bangladesh Bank, effectively reducing reliance on direct central bank financing, a move intended to mitigate inflationary pressures stemming from money supply expansion.
Therefore, the net government borrowing was Tk 20,946 crore in July-December 18 while it was negative Tk 5,364 crore in the same period last year.
Bankers said that higher returns and low risk made treasury instruments appealing to banks, which, in turn, supported increased government borrowing.
The rate of treasury bills has currently neared 12 per cent and that of bonds neared 13 per cent.
In this borrowing mix, the government relied heavily on commercial banks rather than the central bank.
This trend reflected the Bangladesh Bank鈥檚 decision to curtail direct lending to the government, forcing the government to rely on commercial bank sources amid high borrowing needs.
Bankers said that some banks were barred from lending to businesses, forcing them to invest in government treasury bills.
The central bank barred some banks from lending after finding massive loan irregularities and malpractices by them which resulted in failure of repaying depositors鈥� money, devastating overall banking sector. The BB restructured board of 11 banks to rescue them from severe crisis.
However, the high borrowing from the commercial banks may also be concerning as the banks were struggling with severe liquidity shortage.
The lending capacity of the country鈥檚 banks diminished due to high non-performing loans, deposit withdrawals and rising cash outside banks amid high inflation, bankers said.
Private sector credit growth in Bangladesh dropped in October to 8.30 per cent, the lowest in 41 months, reflecting deepening challenges in the banking sector and the broader economy.
Bangladesh鈥檚 annual inflation rate rose for the second consecutive month to 11.38 per cent in November 2024 from 10.87 per cent in the previous month.
It has remained above 9 per cent since March 2023 affecting particularly fixed-income households.
Fixed-income and low-income households have been struggling with rising commodity prices, leading to more withdrawals than deposits.
In this tight liquidity context, higher interest rates on treasury bills and bonds have encouraged banks to invest in these low-risk instruments, effectively meeting government borrowing needs but potentially constraining credit flow to the private sector.
For FY25, the government has set a net borrowing target of Tk聽1.37 lakh crore, aiming to offset budget deficits.
It previously borrowed Tk 94,281 crore in FY24 and Tk 1.18 lakh crore in FY23, showing a steady increase over the years, largely due to rising expenditures and lower-than-expected revenue collection.
