Govt's bank borrowing now negative

The government's debt servicing cost is ballooning thanks to its growing leaning towards high-cost savings tools instead of bank borrowing.

So much that in the first half of fiscal 2017-18, the government's net borrowing from the banking sector was in the negative, according to data from the Bangladesh Bank.

Between July and December last year, the government repaid Tk 3,980 crore to scheduled banks and Tk 3,896 crore to the central bank.

On the other hand, between July and November last year, net sales of savings certificates edged up 4.19 percent year-on-year to Tk 21,172 crore.

This development means the government's debt servicing costs would balloon as the rate of interest on savings instruments is now much higher than that on bank borrowing, said AB Mirza Azizul Islam, a former adviser to a caretaker government.

The rate of interest on bank borrowing is between 2.98 percent and 8.34 percent, while that on savings instruments is 11.04-11.76 percent.

"It has become a burden for the government."

Furthermore, more budgetary fund would become available for the health and education sectors as well as for social safety net schemes if the government avoids the high interest bill for savings certificates, he said.

This fiscal year, the government plans to borrow Tk 28,203 crore from the banking system, but at the rate 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 8 percent interest on their deposit products, which is discouraging savers.

"Besides, some banks have recently been in the news for scams that have eroded depositors' confidence in the banking system."

So, net sales of savings tools will continue to soar in the coming months, meaning the government will have no option but to stay away from borrowing from banks, the BB official added.