Government bank borrowing dips

The government borrowing from the banking system has gone down in the wake of its increased reliance on the savings certificates and low rate Annual Development Programme (ADP).

A recent report of the central bank reveals that the government borrowing during the July-October period of current Fiscal Year 2020-21 has fallen drastically in comparison with the same period a year ago. 

From 1 July to 28 October this year, the amount of loan taken by the government from banks went up by Tk163.58 crore while it increased by Tk33,000 crore at the same time in the previous year. 

The government set the target to borrow Tk84,980 crore from the banking system for the current financial year in order to meet the budget deficit.

Despite the government reliance on bank loans, focus on the savings certificates has increased significantly. 

According to the latest data from the central bank, net savings certificates were sold for more than Tk11,662 crore during the July-September quarter (Q1) of FY'21. 

The amount is about Tk7,000 crore or 148% more than the last year's. 

In the first quarter of the last fiscal, the sale of savings certificates was Tk4,698 crore.

The budget for the Fiscal Year 2020-21 has set the target to borrow Tk20,000 crore from the savings certificates. However, in the first three months of the current fiscal year, more than half of the target savings certificates have been sold.

The government interest-related expenditure rises if it borrows from savings certificates rather than from banks. 

During the July-August period this year, the government paid more than Tk10,000 crore as interest on savings tools.

In this context, South Asian Network on Economic Modeling (SANEM) Research Director Sayema Haque Bidisha told The Business Standard sales of savings certificates have risen due to their high demand, and so, the government is reluctant to take loans from banks.

However, taking more loans from the savings certificates will shoot up the government interest-bearing expenses. It should, therefore, find a way for foreign loans at low interest rates.

Sayema suggested increasing diplomatic efforts to this end.

Analysts believe that the government borrowing trend generally declines as ADP implementation goes slow. 

In the Q1 period of this fiscal, the rate of ADP implementation has been slightly lower than it was at the same period a year ago.

The ADP implementation rate during the July-September quarter this year is 12.79% while it was 14.25% at the same time a year ago. 

In the first quarter of the last fiscal, ADP worth Tk30,752 crore was implemented while this year it is Tk27,453 crore.

A Tk2.14 lakh crore ADP implementation target has been set for the current financial year.

Regarding the implementation of ADP, SANEM Research Director Sayema Haque Bidisha said the pace of implementation is always slow at the beginning of the fiscal. However, in the end, the implementation gathers pace.

Taufiqul Islam Khan, research director at the Center for Policy Dialogue (CPD), echoed the same as Bidisha.

He told The Business Standard that every year, the government bank borrowing slows due to lackluster ADP implementation in the first few months at the beginning of the year.  

The government is also cautious about other expenditures this year due to coronavirus, he said, adding that the sale of savings tools has shot up. 

The government bank borrowing will soar in line with the pace of other project implementations which is likely to enhance at the end of the current financial year, he maintained.