Poor revenue collection has forced the government to exceed its annual borrowing limit from banking sources seven and half a months into the fiscal year, creating a probable credit crunch for the private sector.
The government has set a borrowing limit of Tk 47,364 crore for fiscal 2019-20, but as of February 16 it has taken Tk 52,372 crore, which is a fresh record for a single year.
Last fiscal year, the government borrowed Tk 26,446 crore from the banking sector.
The government would not have needed to borrow so much from banks had it used the foreign loans efficiently for implementation of the annual development projects, said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.
"Capital market could have been another source for the government from the perspective of its fund management, but the market has been going through a haphazard situation for months."
But the government has mainly been forced to borrow the large amount from banks because of its revenue shortfall, he said.
Provisional data showed the National Board of Revenue (NBR) could log in Tk 124,500 crore in the first seven months of the fiscal year, missing the target for the period by a whopping Tk 39,500 crore.
"The government should increase its revenue collection by hook or by crook in order to tackle the huge amount of borrowing from the banking sources. Or else, it will face a substantiate interest burden in the years ahead."
The large volume of government borrowing will have an adverse impact on the private sector in the coming days as businesses will be unable to get their requisite funds from banks.
At present, banks are not feeling the pinch as the demand for credit from the private sector is subdued, Rahman added.
Private sector credit growth stood at 9.83 per cent in December last year, which is the lowest since 2008 at least. Available Bangladesh Bank data goes as far back as 2008.
But banks will face severe liquidity crunch when businesses will start expanding their investment in a full-fledged manner, Rahman said.
"We are not facing any difficulty to manage our funds right now," said Md Arfan Ali, managing director of Bank Asia, adding that the situation may not sustain in the long run given the upcoming probable credit demand.
Credit demand is expected to pick up from April, when banks will implement the single-digit lending rate on their all loan products except credit card, he added.
Besides, the government borrowing is likely to creep up in the final quarter of the fiscal year, when the implementation of ADP tends to be ramped up, said Syed Mahbubur Rahman, managing director of Mutual Trust Bank.
"Banks would start facing problems then," he added.
As of February 16, the government owes banks Tk 160,467 crore, up 48.44 per cent from June 30, 2019.
"A good number of banks are feeling comfortable about offering loans to the government as this is a completely risk-free lending," said AB Mirza Azizul Islam, a former finance adviser to a caretaker government.
Many banks are showing reluctance in giving out loans to the private sector as deposit growth has not increased as expected.
"The government should avoid massive government borrowing from banking sources for the greater interest of private sector. If the private sector is squeezed, employment generation will not widen. In such a situation, the country's GDP growth will face a hurdle," Islam added.