In the initial five months of the current fiscal year 2023-24 (July-November), the government of Bangladesh borrowed Tk31,274 crore from the country’s commercial banks, marking an increase from the Tk25,296 crore borrowed in the preceding fiscal year, as indicated by data from the Bangladesh Bank.
During this period, the government made repayments to the Bangladesh Bank.
According to Bangladesh Bank data, the government returned Tk27,635 crore to the central bank between July and November, resulting in a net borrowing of Tk3,639 crore from the banking system in this timeframe.
Financial analysts have expressed concerns about the government's escalating dependence on loans from commercial banks, fearing it could worsen the existing liquidity crisis in the banking sector. Liquidity in the banking sector dipped from Tk1.7 lakh crore in September to Tk1.6 lakh crore in October.
To address the ongoing dollar crisis, the Bangladesh Bank tapped into the country's foreign currency reserves, selling approximately $27 billion over the past 29 months. Of this total, $5.8 billion was allocated to banks in July-November of FY24, $13.5 billion in FY23, and $7.62 billion in FY22. This process, aimed at managing the dollar crisis, absorbed a corresponding amount of Taka from the banking system, contributing to the existing liquidity pressure, according to banking experts.
The banking sector is grappling with elevated levels of distressed assets, especially non-performing loans, coupled with sluggish deposit growth, which is further exacerbating liquidity conditions, analysts noted.
In the preceding fiscal year 2022-23, the government borrowed a total of Tk1.24 lakh crore from the country's banking sector, with Tk98,826 crore from the central bank and Tk25,296 crore from commercial banks.
Recognizing the potential inflationary impact of further borrowing from the central bank, the government exercised caution, considering the injection of new money into the economy and its potential contribution to inflation.
To meet its borrowing requirements, the government primarily resorts to advances, overdrafts, and the issuance of treasury bills and bonds from the banking system. The heavy reliance on borrowing from the banking sector suggests challenges in revenue generation and limited access to alternative financing options, according to banking analysts.
Apart from borrowing from commercial banks, the government also borrows from non-banking domestic sources, including government T-bills and bonds held by non-bank financial institutions, insurance firms, and private investors, as well as savings vehicles developed by the Directorate of National Savings.
The government has set a borrowing target of Tk1.32 lakh crore from the banking system for FY24. As of November 29, the total outstanding loans of the government from commercial banks increased to Tk2,61,847 crore compared to Tk2,39,615 crore on June 30, 2023, according to Bangladesh Bank data.
However, the government's overall outstanding borrowing from the banking sector declined to Tk3,97,417 crore as of November 29, 2023, from Tk3,93,774 crore on June 30, 2023.
