Bangladesh’s government has exceeded its bank borrowing target for deficit financing this fiscal year, reaching Tk 780 billion despite official claims of austerity measures.

Official statistics reveal that public spending has far outpaced earnings, leading to increased borrowing and a potential record-high debt by the end of the fiscal year.

The data provided by the central bank of Bangladesh shows a significant surge of 117% in government borrowings for budget support during the first ten-plus months of the current fiscal year, from July 01 to May 10.

The substantial borrowing highlights the government’s growing need for cash and its severe liquidity crunch, resulting from revenue shortfalls and a decline in the sales of government savings certificates.

Sources involved with the bid operations reveal that the government has consistently exceeded its weekly borrowing targets, an unprecedented occurrence.

Economists and central bank officials fear that the dependence on public borrowing from the banking system could reach an all-time high and exceed the fiscal target of over Tk 1.11 trillion by June, when annual development program spending pressure usually intensifies.

Government borrowing from the banking system includes borrowings from the central bank and scheduled banks, primarily through the issuance and re-issuance of Treasury Bills and Bonds, as well as advances and overdrafts.

An anonymous official from the central bank stated that lower internal revenue collection is the main driver behind the government’s increased borrowing from the banking system.

To mitigate liquidity crunches banks face, the central bank has been injecting cash into government coffers through a mechanism known as ‘devolvement.’

As of May 10, the central bank alone has provided Tk 660 billion to the government this fiscal year through the devolvement tool.

However, concerns have been raised by bankers and economists regarding the excessive use of high-powered money, equivalent to printing money, which could contribute to future inflation.

This situation also highlights the dysfunctionality of Bangladesh’s money, bond, and capital markets. The use of such financing methods may have a multiplier effect, impacting the economy up to five times.

Experts argue that intervention in these markets distorts their functioning and prevents market forces from operating independently.

The country’s total revenue mobilization for the first eight months of the fiscal year has amounted to Tk 2.33 trillion, representing only 54% of the annual target of Tk 4.33 trillion.
Non-NBR tax collection has been feeble, reaching only 27% of the target.

The net sales of national savings certificates have experienced negative growth as maturity payments have exceeded fresh investments. The government has implemented stricter investment procedures, including reducing the individual investment ceiling.

As the central bank continues to inject liquidity into the government, concerns persist about the inflationary risks associated with such practices.

While the central bank claims to alleviate overall liquidity pressure, the private sector is grappling with challenges, including limited access to foreign currency for importing industrial raw materials and disruptions in power supply due to a lack of primary energy.

Bangladesh’s expansionary policy contrasts with the monetary tightening measures adopted by many countries to contain inflation, resulting in higher inflation rates in Bangladesh than in its peers.

In light of these developments, economists emphasize the importance of properly functioning money, bond, and capital markets to avoid market distortions and promote independent market forces.