The government made a net repayment of Tk 21,696.40 crore against ‘low-interest’ loans to the banking sector in the first seven months of the current financial year as it borrowed more than Tk 24,000 crore through ‘high interest’ national savings tools during the period.
Bangladesh Bank officials and an expert said that the government would have to count huge interest to manage its budget deficit as the rate of interest on savings certificates and bonds was much higher than that of the treasury bills and bonds, through which the government takes loan from banks.
BB officials said that typically, the government had bank borrowing over thousands of crores during the first seven months of a financial year but this year the government had no net borrowing.
‘As the government is now inundated with the sales of huge amount of national saving certificates and bonds, it has now surplus cash in its account,’ said an official.
The finance ministry is now forced to suspend all auctions for treasury bills and bonds for banks for this month for the first time in recent years as the government has decided not to borrow any fund from the banking sector.
Bangladesh Bank on Tuesday issued a letter to all banks informing that the government would not borrow any fund from the banks in March in line with the finance ministry’s directive.
The cash and debt management technical committee, a body of the finance ministry, took the decision in its meeting on February 27.
BB officials said that the government was basically taking loans through the NSCs which carry interest rates between 10.50 and 12 per cent and repaying the bank loans (taken through T-bills and bonds) that carry interest rate of around 2.95 per cent and 7.78 per cent.
A BB official said that the government was now compelled to borrow through selling the savings certificate and bonds as the clients were now crazy to invest their fund with the government instruments due to its much higher interest rate than that of the banks’ deposit products.
Against this backdrop, the government’s borrowing demand from the T-bills and bonds decreased significantly in recent months.
The cash surplus with the government account stood at Tk 7,900 crore as of February 23, 2017 due to the higher net investment in savings tools.
The BB official said that the government borrowing from the savings tools had increased significantly which ultimately created a negative amount in the bank borrowing.
According to the Directorate of National Savings data, the net investment in the national savings certificates and bonds in the first half of the current financial year increased by 76.41 per cent to Tk 23,473.56 crore from Tk 13,305.59 crore during the same period a fiscal year ago.
The BB official said that the net investment in the government savings tools would increase more in the coming months as the deposit rate in the banking sector continued to maintain a decreased trend due to dull business.
The interest rate for the banks’ deposit products are now between 5 per cent and 6 per cent resulting that the general people are now crazy to invest their fund with the government instruments, he said.
The government set a borrowing target of Tk 19,610 crore from national savings certificates and bonds but it surpassed the goal in the first five months of the FY17.
The government aimed to borrow Tk 38,938 crore from the banking source in FY17 to manage its budget deficit.
Former interim government finance adviser AB Mirza Azizul Islam told New Age on Tuesday that the government would have to face budget mismanagement due to the higher interest liabilities from the NSCs.
The government has to count a large amount of expenditure from its fiscal budget as it is now compelled to borrow from the savings tools avoiding the T-bills and bonds, he said.
He said that huge investment in the national savings certificates and bonds had become a burden for the government.
The liabilities of the government have increased significantly due to the large amount of net investment in the savings tools, he said.
‘Since it is the most expensive borrowing tool for the government, considering the rates of interest of the savings tools, the government should stop selling savings tools once its annual target is achieved,’ he observed.