Dhaka, Bangladesh (BBN) – Bangladesh government’s net borrowing from the banking system to partly finance its budget deficit drastically fell by nearly 68 per cent in the just concluded fiscal year, officials said.
Its borrowing from the banking system came down to BDT 79.51 billion until June 30 last from BDT 245.71 billion in the corresponding period of the previous year, according to the central bank statistics.
“The government borrowing from the banking system has dropped significantly during the period under review mainly due to higher sales of savings instruments,” a senior official of the Bangladesh Bank (BB) told BBN in Dhaka.
The ministry of finance (MoF) earlier set borrowing target from the banking system at BDT 259.93 billion for the fiscal year (FY) 2013-14, while it was revised to BDT 299.82 billion lastly.
Net sale of savings instruments jumped by almost 14 times to Tk 100.18 billion during the July-May period of the FY 14 from only Tk 7.35 billion in the corresponding period of the previous fiscal, according to the official figures.
“Higher interest rates on the savings instruments are encouraging the small savers to invest more in the risk-free instruments,” the central banker explained.
Currently, average interest rate on deposit, offered by the commercial banks, is around 8.0 per cent while the rate for savings instruments is paid on an average 13 per cent.
The official also said higher sales of such instruments have helped the government to borrow less from the banking system. “The net sales of such instruments may touch BDT 120 billion in the FY 14.”
Slashing fund for implementation of the Annual Development Programme (ADP) for the FY2014 has also contributed to less borrowing from the banking system, the BB official observed.
In March last, the government cut down fund by 8.91 per cent to BDT 600 billion from BDT 658.72 billion original ADP allocation for the FY 14.
The government borrowed BDT 240.11 billion, in gross terms, from the commercial banks through issuing different bonds and treasury bills (T-bills) in the FY 14, while it repaid BDT 160.60 billion to the central bank, according to the BB official.
During FY 15, the government is set to borrow a total of BDT 312.21 billion from the banking system through T-bills and bonds to partly finance its budget deficit.
Under the arrangement, the government has decided to borrow BDT 198.24 billion from the banking system by issuing bonds, while BDT 113.97 billion will be borrowed through auctions of short term T-bills, according to the budget document.
Currently, three T-bills are being transacted through auctions to adjust the government’s borrowing from the banking system. The T-bills have 91-day, 182-day and 364-day maturity periods.
Furthermore, five government bonds with duration of two, five, 10, 15 and 20 years respectively – are being traded in the market.
BBN/SSR/AD-09July14-1:38 am (BST)
