Domestic borrowing remains sluggish

The government's net domestic borrowing in the first seven months of the fiscal year was only 17.9 percent of the target, mainly due to huge sale of savings instruments and slow development spending.

Between the months of July last year and January this year, the government's net domestic borrowing was Tk 11,222 crore against the budgetary target of Tk 61,548 crore for the whole year, according to data from the central bank.

The interest rate on bank deposits slid, which prompted a surge in savings instrument sales, said a finance ministry official.

Subsequently, the government did not borrow a single taka from the banking system so far this fiscal year; rather, it repaid Tk 18,959 crore, according to central bank statistics.

In fiscal 2016-17, the government's target for borrowing from the banking system is Tk 38,938 crore.

On the other hand, the net non-bank government borrowing, which includes savings instruments, stood at Tk 29,980 crore during the seven-month period -- against the entire year's target of Tk 22,610 crore.

The rate of interest on savings instrument is significantly higher than any other interest rate prevailing in the domestic market, said a central bank report.

“This is the main cause of the low domestic borrowing.”

The rate of interest on savings instruments is now more than double that on bank deposits, said a Bangladesh Bank official. As a result, savers are flocking to buy savings instruments.

At present, the rate of interest on savings instruments is around 12 percent, whereas the rate of interest on bank deposit is almost below 6 percent -- lower than the average inflation rate.

Savers now cash out as soon as their deposit schemes mature to buy savings instruments, said a BB official.

In the first seven months of the fiscal year, savings instruments amounting to Tk 41,100 crore were sold, up almost 45 percent year-on-year.

Subsequently, the government's high-cost borrowing is soaring, which is pushing up interest payment, the BB official said.

In the first seven months of the fiscal year, the government repaid Tk 8,485 crore as interest on savings instruments, which was Tk 6,130 crore a year earlier.

Another cause for the low borrowing is that the implementation of the development budget has not gone as per plan, said a finance ministry official.

In the first nine months of the fiscal year, only 45 percent of the revised development budgetary target could be spent.

Usually, the ministries and divisions spend more in the last one or two months of the fiscal year. As a result, the borrowing increases at that time.

Even then, bank borrowing would not be at par with the budgetary target this time, he said.