Govt bucks trend
Breaking away from the recent trend, the government paid back huge sums of loan to the banks in the last six months instead of borrowing from the banking system.
Although it sounds good, it is not quite so. The government paid back Tk 7,745 crore bank loan between July and November 19 not because it has become financially strong, it was because of low budget expenditure and high sale of savings instruments.
The high sale of savings instruments would increase the interest burden on the government while poor budget implementation means development works are lagging behind target. However, the loan repayment to the banks would have some positive impacts.
The government had a target to borrow Tk 16,755 crore from the banks during the 2009-10 fiscal year.
According to Bangladesh Bank statistics, the government repaid Tk 15,634 crore to the central bank between July and November. On the other hand, the government borrowed Tk 7,889 crore from commercial banks. As a result the government repaid net Tk 7,745 crore in loans.
Finance ministry sources said the bank loan decreased as the government's overall budget expenditure was not at par with the target and sales of savings instruments increased.
Normally revenue expenditure exceeds its target. But in the current fiscal year the implementation of the revenue expenditure is also slow.
According to finance ministry statistics, in the current fiscal year the government spent 21.4 percent of the target of total revenue expenditure in July-September period. In the last fiscal year, during the corresponding period, it was 26.9 percent.
In the same way, though the speed of development expenditure increased slightly in the first four months of the fiscal year, only 16 percent of the total allocation could be spent.
Finance ministry sources said after December, spending of revenue and development expenditure would pick up. As a result the bank-borrowing scenario would change.
Even though bank borrowing would increase at the end of the fiscal year, this time the total budget target of borrowing from the banking system would not be required to achieve as sale in the savings instruments sector is huge, the source added.
Statistics of the sale of savings instruments available for the first three months of this fiscal year show that gross sale increased by 66.65 percent and net sale shot up by 270.29 percent. In the same period last fiscal year, gross sale increased by 2.63 percent and net sale went up by 120.10 percent.
A Bangladesh Bank official said the banks in recent times substantially lowered interest rate on deposits. As a result the depositors are opting for savings instruments instead of banks.
Since July, the government repaid more to the central bank but it took more loans from the commercial banks. In this regard Bangladesh Bank sources said the amount of excess liquidity in commercial banks is much more now. Though the amount of excess liquidity fell slightly, the amount is still above Tk 35,000 crore.
On the other hand, even though inflation is still low, in the recent months it is gradually increasing and remittance is showing a boom. As part of overall monetary management, money is being mopped up from commercial banks and higher payment is being made to the central bank so that it does not have an impact on inflation.
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