Under a contingency measure, the government opts for higher emergency borrowing with two debt instruments that can yield Tk 160 billing daily in need.
To this effect, the government is set to raise the ceilings of two emergency borrowing instruments -- ways and means advance (WMA) and overdraft -- by over 33 per cent.
The move evokes critical appreciation as economists say it gives an indication at further ballooning of the ratio of public borrowing from the banking system.
The existing daily borrowing limit by the government under the two emergency borrowing windows is Tk 60 billion each but the Ministry of Finance has asked the central bank to revise the ceiling upward by 33.33 per cent to Tk 80 billion each, according to Bangladesh Bank (BB) sources.
With the latest decision, the government, now, can borrow Tk 160 billion daily from the banking system if and when necessary.
Both WMA and overdraft are temporary advances given by the central bank to the government to tide over any mismatch between receipts and payments.
The development comes at a time when the volume of public borrowing from the banking system continues mounting. Taking the growing trend in consideration, the credit-growth target for the public sector has been adjusted upwards to 37.7 per cent from 36 per cent in the latest monetary policy for January-June 2023 period.
Confirming the development, a BB official said the ministry sent a letter to the central bank regarding the ceiling revision of the two emergency borrowing windows.
"Now, the government can borrow Tk 80 billion each from two instruments -- WMA advance and overdraft -- a day instead of Tk 60 billion each," the BB official said.
According to the official, the government will borrow from WMA at a reverse repo rate of 4.25 per cent while the rate for overdraft will be one- percentage point higher at 5.25 per cent.
Official data show that the government borrowing from the ways and means advance (WMA) was Tk 7.27 billion and from overdrafts nil during the current fiscal year.
However, there was no WMA and overdraft during the last fiscal year (2021-22).
The net public borrowing this fiscal year up to February 02 is Tk 351.8 billion, up by nearly 200 per cent. The net total credits to the government from the banking system amounted to Tk 3.054 trillion as of February 02.
During the period, receipt from non-banking sources (nonbank financial institutions, insurance companies, individual investors through treasury bills and bonds) amounted to Tk 67.86 billion.
However, the government borrowing between June 30, 2022 and February 02, 2023 stood at Tk 419.66 billion from domestic sources excluding net sales of national savings certificates.
The government-borrowing target for the current fiscal year from the banking system is Tk 1.063 trillion.
Economists term the upward revision in borrowing limit logical in a sense that the size of the economy keeps growing. Simultaneously, the size of national budget and the public borrowing are also in a rising trend.
But, in their view, the performance in resource mobilisation remains much bellow the expectation, leading to lower tax-GDP ratio.
Executive director of local think-tank Policy Research Institute (PRI) of Bangladesh Dr Ahsan H. Mansur says the borrowing-ceiling revision by the government is justified as Bangladesh last revised it at least a decade ago. But over the years, Bangladesh's economy has expanded manifold.
"So, I think spiking Tk 20 billion each from two borrowing tools is justified. We would feel worry in the context of inflation when it would have been enhanced by Tk 200 billion or Tk 300 billion," he told the FE.
But, on a note of caution, he said it would emerge as risky factor in the financial sector if the government's dependency keeps growing on the instruments in the coming days.
"The government's main borrowing instruments should be treasury bills and treasury bonds where the scheduled banks are involved. When it borrows from the central bank, it means nothing but to print money involving higher risk of inflation in the economy," he opines, as inflation is already pinching people.
Eminent economist and former finance adviser of caretaker government AB Mirza Azizul Islam echoed Dr Mansur's views, saying that the government is targeting these instruments to meet their emergency expenses as liquidity situation in the banking system is under stress.
He suggests that the government give more focus on raising revenue instead of targeting the use of these tools.