Government bank loans rise as NSC sales plunge
A file photo shows a man counting wads of taka banknotes in Dhaka. The State’s net indebtedness increased during the current fiscal year 2021-2022 against a backdrop of a drastic drop in net sales of national savings certificates. – Photo New Age
The State’s net indebtedness increased during the current fiscal year 2021-2022 against a backdrop of a drastic drop in net sales of national savings certificates.
According to data from the Bangladesh Bank, government borrowing from the banking sector amounted to Tk 27,110.35 crore from July 1 to December 12 of the current fiscal year.
For deficit financing, the government aims to borrow Tk 76,452 crore from the banking system during the entire 2021-2022 fiscal year.
During the July-December period of fiscal year 2020-2021, government borrowing from the banking sector was only Tk 595.4 crore compared to Tk 44,946.8 crore in the same period of the 2019-2020 fiscal year.
The high sales of NSC were the source of the drastic decline in bank loans during FY21.
The government’s original target was to borrow Tk 20,000 crore, but sales were more than double the FY21 target.
In fiscal year 22, the government took a number of budgetary and fiscal measures to contain the high sales of NSC.
Due to policy measures, sales of NSC fell in fiscal year 22.
In July-October of FY22, NSC’s net sales were 40 percent lower than sales for the corresponding period of FY21.
As NSC sales have fallen sharply, the government must resort to higher bank loans to finance the deficit, BB officials said.
Borrowing from banking sources was cheaper for the government compared to the cost of funds compared to NSC sales, they said.
In addition, the increase in government borrowing from the banking sector also created investment opportunities for banks, which held excess liquidity, they said.
The scope of the investment came as a blessing for banks at a particular time when growth in credit to the private sector fell short of the government’s fiscal target, BB officials said.
Credit growth to the private sector stood at 9.42 percent in October against the budget target of reaching 14.8 percent growth in the current fiscal year.
Prior to the rebound in government bank lending in recent times, government borrowing was Tk 26,304 crore in full year 21 against the government budget target of Tk 84,980 crore.
Borrowing would increase in the coming days of the current fiscal year in line with the rebound in business and economic activity and borrowing could even exceed the annual target, officials said.
Government borrowing from the banking sector amounted to Tk 70,714.8 crore in fiscal year 2019-2020.