The government's borrowing from the banking system soared 263 percent year-on-year in the first nine days of the current fiscal year as expenditure exceeded revenue.
The amount was Tk 5,011 crore during July 1-9, against Tk 1,380 crore in the same period a year ago, according to central bank statistics. The total amount was borrowed from Bangladesh Bank.
The government aims to borrow Tk 31,221 crore from the banking system in the current fiscal year.
The big jump in bank borrowing is a temporary phenomenon, a finance ministry official said. The additional expenditure was due mainly to festival bonus and road repair costs ahead of Eid-ul-Fitr, he said.
The government's borrowing from the banking system was significantly lower than the target in both the original and revised budget of fiscal 2013-14. The government borrowed Tk 6,430 crore against the target of Tk 25,993 crore in the original budget and Tk 29,982 crore in the revised budget.
The bank borrowing declined in the last fiscal year due mainly to a slow pace of ADP implementation and a sharp rise in revenue from the sales of national savings certificates, according to the central bank's monetary policy statement (MPS) that was released on Saturday.
The overall net borrowing from the banking system is the sum of borrowing by the government from the central bank and scheduled banks.
The government made a net repayment of Tk 17,550 crore to the BB last fiscal year, while borrowed Tk 23,990 crore from scheduled banks, according to the MPS.
“In view of the lower than targeted borrowing, the government could use this fiscal space to settle over dues of the public sector to the financial sector,” the MPS said.
Limiting government borrowing from the banking sector is important for achieving inflation targets and providing the space for banks to lend to the private sector, it said.
The first half-yearly monetary programme assumes that any unanticipated spending pressures will be accommodated within the sizeable borrowing limit set in the fiscal 2015 budget.
“This is likely to be possible as the finance ministry has an established track record of keeping within this borrowing limit,” the MPS said.
A central bank official said the private sector credit will not be affected by the government's bank borrowing, as there is enough liquidity supply in the banking system.
The call money market remained stable even ahead of Eid-ul-Fitr due to excess liquidity, the official said.
The call money rates fell in the second half of last fiscal year but the average retail interest rate spreads rose above 5 percent, according to the MPS.
High liquidity levels are also reflected in below average loan to deposit ratios, it said. At the retail level, both deposit and lending rates fell in the second half of fiscal 2014 and interest rate spreads have on average increased from 4.99 percent in January 2014 to 5.22 percent in May 2014 as the deposit rates have fallen faster than lending rates.
“Domestic lending rates have fallen due to lower cost of funds for banks, lower demand for credit as well as due to increasing competition from overseas lenders whose lending rates are in single digits,” the MPS added.