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Govt borrowing less from BB, more from commercial banks

  • Staff Correspondent
  • 17 August, 2023 12:00 AM
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Govt borrowing less from BB, more from commercial banks

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The government is lowering its credit from the central bank but intensifying that from commercial banks amid growing fear that such loans can fuel inflation further.

The government's total loans from Bangladesh Bank declined by Tk 106.35 billion in July, the first month of the fiscal year 2023-24, compared to that of June, according to the Bangladesh Bank data.

In the last fiscal year, the public borrowing from the banking system jumped to a record Tk 1.23 trillion, most of which was provided by the central bank.

High borrowing from the central bank, a significant part of which through money printing, is believed to fuel already prevailing high inflation, mostly coming from high import bills.

On the other hand, the government had to take Tk 105.78 billion more loans from the commercial banks in the month to meet its budget deficits.

As a whole, the government’s net bank borrowing declined by Tk 570 million in the first month of the current fiscal year.

But the banking sector experts cautioned that only the first month’s data is not sufficient to predict if the government is actually going to borrow less from the central bank this year.

Usually, public spending remains low at the beginning of a fiscal year when the expenditure can be met through domestic revenues or foreign loans.

A fresh global crisis shot up food and energy prices across the globe last year. In addition, high public loans from the central bank also sparked criticisms.

Economists and the central bank itself suggested the government to go for overseas borrowing or to borrow from saving certificates although the saving tools sale dropped drastically after high sales were tamed with some new rules.

 “At this moment, it is very important to control inflation. So, it is good news that the government is cutting its loan from the central bank although there is confusion as to how long it will be able to maintain it,” economist Dr. Ahsan H Mansur said.

He said that the loans from Bangladesh Bank should be curtailed more to curb inflation adding that it might increase loans from the commercial banks but it will print money.

For FY 2023-24, the government set inflation and growth targets at 6 percent and 7.5 percent respectively.

In its monetary policy for the first half of FY 2023-24, Bangladesh Bank also put more emphasis on containing inflation rather than growth with lowering private credit growth target to 10.90 percent by this December and to 10 percent by next June from existing 14.10 percent.

Bangladesh Bank officials informed that the central bank withdrew money worth Tk 2.25 trillion from the market by selling $22.50 billion from its reserve during the last two years, also creating a moderate crisis of taka in the market as well alongside dollar crisis.

The liquidity supply in the market was augmented through alternative means, otherwise the crisis of money would have raised a hue and cry like that of dollar, they added.