The Financial Express

Bank borrowing thru bills, bonds halted to address cash management concern

| Updated: August 25, 2021 15:16:30

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Cash management is cited as prime concern as the government suspends its bank borrowing through cancelling auctions of both treasury bills or T-bills and bonds until August 31 amid swelling public coffers.

Officials said the central bank communicated Tuesday the latest government decision on suspension of the auctions with all the scheduled banks and non-banking financial institutions (NBFIs).

"We've conveyed the decisions to the banks and NBFIs on advice of the finance ministry," a senior official of the Bangladesh Bank (BB) told the FE.

On quick compliance with the government decision, a scheduled auction for Bangladesh Government Treasury Bonds (BGTBs), generally known as bonds, for Tuesday was cancelled.

Another auction for treasury bills (T-bills), scheduled for August 26, has already been halted on the same ground, the official added.

The government's latest moves came against the backdrop of the rising trend in surplus liquidity in its accounts in recent days.

The surplus liquidity in government accounts swelled to Tk 110 billion as of August 22 from Tk 60 billion six days ago, according to the officials.

Market operators, however, do not see any major blowback from such suspension of auctions. They think the cessation might push up excess liquidity slightly in the country's banking system.

"Higher revenue collection along with the lower implementation of ADP (annual development programme) has pushed up the position on government's surplus cash balance in recent days," a senior official familiar with the government debt-management activities told the FE.

He also said higher sales of national savings certificates (NSCs) have also pushed down the borrowings from the country's banking system by government to meet budget deficit.

Talking to the FE, Shah Md. Ahsan Habib, professor and director of Bangladesh Institute of Bank Management (BIBM), said there will be no major impact on the market if one or two auctions were cancelled.

"It is a part of government cash management," Dr Habib said while replying to a query.

The tax-revenue collection rose to Tk 2.61 trillion in the outgoing fiscal year (FY), 2020-21, from Tk 2.18 trillion a year before.

The advance tax at the import stage of major revenue-generating items was one of the major reasons behind the higher revenue growth in the outgoing fiscal year.

Country's overall import payments jumped nearly 20 per cent to $60.68 billion in July-June period of FY '21 from $50.69 billion in the same period a year earlier.

Meanwhile, government's aggregate net borrowings from the country's banking system stood at Tk 66.93 billion as on August 19 this year, according to BB's confidential report.

Actually, the government borrowed Tk 169.27 billion during the period under review from the scheduled banks with T-bills and bonds while repaying Tk 102.34 billion to the central bank, it added.

Meanwhile, the government has already set a lower borrowing target from the banking system to meet partly the budget deficit in FY'22. Its borrowing is set to amount to Tk 764.52 billion in FY'22 from Tk 797.49billion revised target in the last FY, according to the budget documents.

Under the arrangement, the government will borrow Tk 516 billion through issuing long-term BGTBs and the remaining Tk 248.52 billion through T-bills.

Currently, three T-bills are being transacted through auctions to adjust government borrowings from the banking system. The T-bills have 91-day, 182-day and 364-day maturity periods.

Furthermore, five government bonds with tenures of 02, 05, 10, 15 and 20 years are traded on the money market.

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