Govt's bank borrowing in the negative
The government's net borrowing from the banking sector was in the negative in the first quarter of the fiscal year thanks to a deluge of funds by way of savings instruments.
Between July and September, the government borrowed Tk 2,132.30 crore from banks and repaid Tk 5,270.20 crore to take its net borrowing from the channel to Tk 3,137.90 crore in the negative, according to data from the Bangladesh Bank.
In the first two months of the fiscal year, savings instruments worth Tk 9,028.57 crore were sold, up 15.81 percent year-on-year, according to data from the Department of National Savings.
The development means the government's debt servicing costs will balloon as the rate of interest on savings instruments is much higher than that on bank borrowing, said AB Mirza Azizul Islam, former adviser to a caretaker government.
The rate of interest on funds borrowed from banks is between 2.98 percent and 8.07 percent, while that on savings instruments is 11.04-11.76 percent.
This fiscal year, the government plans to borrow Tk 28,203 crore from the banking system, but at the rate the savings instruments are being sold, the target seems highly unlikely, said a high official of the BB. Savers continue to flock to savings instruments as they yield significantly higher returns than on bank deposits. Banks are now offering at most 7 percent interest on their deposit products. The reason being the majority of the banks are flush with liquidity, according to Syed Mahbubur Rahman, managing director of Dhaka Bank.
“The situation will improve if the government borrows from the banking system.”