Dhaka, Bangladesh (BBN)– The government borrowed nearly BDT 230 billion from the banking system in the first 35 days of this fiscal year (FY), 2019-20, to finance budget deficit partly, officials said.

Off which BDT174.69 billion was borrowed from scheduled banks while rest of BDT 55.30 billion from the central bank of Bangladesh, according to a confidential report, prepared by the Bangladesh Bank (BB).

Talking to the BBN, a senior official said the government’s bank borrowing has already increased significantly to adjust higher expenditure for June, the last month of FY ’19.

Normally adjustment of the previous fiscal’s expenditure is allowed in the first-half of July of the next fiscal, added the official, familiar with the government’s debt management process.

During the period under review (the first 35 days), the government borrowed from both sources – the scheduled banks and the central bank, as its account went to negative territory.

The government’s account saw a negative balance, amounting to BDT 33 billion as of August 19, according to another official.

Besides, a decreasing trend in sales of the national savings certificates (NSCs) in the recent months has also contributed to push up the government’s bank borrowing volume, he explained.

Net sales of the NSCs came down to BDT 32.08 billion in June from BDT 32.58 billion in the previous month, official figures showed.

The impact of higher bank borrowing, however, is yet to visible in the market, as the BB is providing liquidity support to the banks by using its monetary instruments, like – repurchase agreement (repo) and assured liquidity support (ALS).

“Extra pressure will be created in the market, if the central bank reduces providing liquidity support to the banks,” a senior official of a leading bank explained.

The government has availed BDT 33 billion under ways and means advances (WMAs) facility to finance its budget deficit, according to a BB official.

The government is now empowered to borrow up to BDT 40 billion from the central bank under WMAs to meet its day-to-day expenditures without issuing any securities.

In addition, the government is entitled to borrow a maximum of BDT 40 billion through overdraft (OD) drawing facility from the BB on the same ground.

The official also said the government earlier availed the OD facility, but now it has been cleared.

The government has already targeted higher borrowing from the banking system to finance its budget deficit partly for FY ‘20.

The bank borrowing is set to rise to BDT 473.64 billion in this fiscal from BDT 308.95 billion in the previous fiscal, according to the budget documents.

Under the arrangement, the government will borrow BDT 280.94 billion by issuing long-term bonds, and the remaining BDT 192.70 billion through T-bills.

Currently, four T-bills are being transacted through auctions to adjust the government’s borrowing from the banking system. The T-bills have 14-day, 91-day, 182-day and 364-day maturity periods.

Furthermore, five government bonds – with tenures of two, five, 10, 15 and 20 years respectively – are traded in the market.