The government鈥檚 borrowing from Bangladesh鈥檚 banking sector saw a notable increase in four months (July-October) of the 2024-25 financial year, driven by the attractive returns and low-risk nature of treasury instruments for banks.
According to Bangladesh Bank data, the government鈥檚 net borrowing from banks reached Tk聽16,401 crore in the July-October period, significantly up from Tk 6,568 crore in July-September 15.
The net government borrowing was Tk聽103 crore in July-October in 2023.
Bankers said that higher returns and low risk nature made treasury instruments appealing to banks, which, in turn, supported increased government borrowing.
The rate of treasury bills has currently neared 12 per cent and that of bonds neared 13 per cent.
In this borrowing mix, the government relied heavily on commercial banks rather than the central bank as it borrowed Tk聽56,233 crore from commercial banks.
During this period, it repaid Tk聽39,832 crore to the Bangladesh Bank, effectively reducing reliance on direct central bank financing, a move intended to mitigate inflationary pressures stemming from money supply expansion.
The borrowing surged in October as the government repaid Tk聽29,272 crore to the Bangladesh Bank, but borrowed Tk聽22,704 crore from the commercial banks in July-September 15.
This trend reflected the Bangladesh Bank鈥檚 decision to curtail direct lending to the government, forcing the government to rely on commercial bank sources amid high borrowing needs.
However, the high borrowing from the commercial banks may also be concerning as the banks were struggling with severe liquidity shortage.
The lending capacity of the country鈥檚 banks diminished due to high non-performing loans, deposit withdrawals and rising cash outside banks amid high inflation, bankers said.
Although inflation eased slightly to 9.92 per cent in September from a peak of 10.43 per cent in August, it remained high, affecting particularly fixed-income households.
Fixed-income and low-income households have been struggling with rising commodity prices, leading to more withdrawals than deposits.
In this tight liquidity context, higher interest rates on treasury bills and bonds have encouraged banks to invest in these low-risk instruments, effectively meeting government borrowing needs but potentially constraining credit flow to the private sector.
For FY25, the government has set a net borrowing target of Tk聽1.37 lakh crore, aiming to offset budget deficits.
It previously borrowed Tk 94,281 crore in FY24 and Tk 1.18 lakh crore in FY23, showing a steady increase over the years, largely due to rising expenditures and lower-than-expected revenue collection.