The government's borrowing from the country's banking system dropped significantly in the first nine months of this fiscal year (FY), 2020-21, with an increasing reliance on the National Savings Department (NSD) instruments that intensifies interest risks.
The government's borrowing from the banking system dropped by nearly Tk 67 billion in the July-March period of FY 21.
During the same period in FY 20, the government borrowed Tk 509.44 billion (net) from the banking system to meet its budget requirement, according to the Bangladesh Bank (BB).
Besides, the central bank recently suspended a few auctions involving Tk 121 billion, scheduled to be held with the primary dealer banks, due to poor appetite from the government side.
On the other hand, the government borrowed Tk 276 billion in addition to its original auction amount during the same period of last FY.
The BB statistics showed that there was an excessive reliance on the 'other than banking' sources, especially from the NSD instruments - which offered double-digit interest, in this fiscal.
So, borrowing from the NSD schemes stood at Tk 293.1 billion (net) in the July-February period of FY 21.
The amount is Tk 196 billion or more than 200 per cent higher than the amount of the same period a year earlier. Besides, it is 46 per cent higher than the budgetary target of Tk 200 billion (annual).
Meanwhile, borrowing from the banking system is likely to fall further due to the second wave of Covid-19 pandemic that is hitting new records almost every day breaking its previous day's records.
Bangladesh government's borrowing picture is inverse to many frontiers and emerging economies of the world, as debts there are soaring due to the Covid-19.
The Finance Division officials told the FE that the public exchequer has adequate funds to spend. So, the bank borrowing volume is lower than expected.
"As of March 31 the exchequer had nearly Tk 260 billion," said one senior official.
He also said the government is still not disbursing funds to less prioritised development projects, leading to low fund requirement.
"We've stopped foreign and domestic tours. We've also stopped paying for contingencies."
The government meetings are being held through online platforms at a minimum cost, he added.
An official at the BB told the FE that the situation is such because of higher external funding.
"We expect a rise in May and June when ADP execution rate usually becomes higher," he noted.
On the other hand, economists say borrowing from expensive NSD instruments is a matter of concern.
"We pay at least Tk 20 for Tk 100 debt when we borrow from the savings certificates, is it justified?" said Dr. Zahid Hussain, an independent economist.
"From budgetary point of view, such borrowing is expensive, as it drives out low-interest bearing instruments, like the banking system," he mentioned.
Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh - a privately-owned think-tank, said low borrowing from the banking system is due to the Covid-19-induced impact. The spending remained much lower than as planned or expected in annual budget documents.
"A huge amount of fund was provided in this fiscal by external sources like the World Bank, IMF and Asian Development Bank (mostly to fight or mitigate risks relating to Covid-19)."
Revenue mobilisation, which now remained at a low level, should be picked up in the coming months to meet the budgetary requirement, he concluded.
The target of the government's domestic borrowing for FY 21 is Tk 1.1 trillion, of which target from the banking system is Tk 849.8 billion, other than banking system (including NSD) Tk 250 billion, and NSD Tk 200 billion.
In the meantime, Bangladesh Government Investment Sukuk (BGIS) was introduced in December 2020 to raise funds for a project - 'Safe Water Supply to the Whole Country.' Tk 40 billion was raised through five-year BGIS.