Govt’s bank borrowing dips amid slow spending

The government's bank borrowing plunged 90 per cent to Tk 3,033 crore in the first quarter of the fiscal year because of the slower development activities and lower than expected spending on subsidies and paddy and rice procurement.

The figure was Tk 27,951 crore in the July-September period a year ago, Bangladesh Bank data showed.

Higher sales of savings instruments, lower disbursement of funds from the annual development programme and the subsidy budget and the lower purchase of rice in the last boro season largely contributed to the drastic fall in the government's borrowing from the banking sector.

Savings certificates worth Tk 7,455 crore were sold in July and August, more than double from Tk 3,717 crore during the same period last year, according to the central bank data.

The implementation of the ADP has not accelerated because of the dragging coronavirus pandemic. It had witnessed a massive fall in July as the pandemic-induced slowdown and uncertainty are yet to go. The same trend continued in August before picking up to some extent in September.

Overall, development spending from the government's fund declined 10.33 per cent to Tk 11,274 crore from July to September from Tk 12,573 crore last year.

Another reason for the lower ADP spending is the government's postponement of fund disbursement for the low priority projects in the first quarter as part of efforts to free up funds for the priority sectors amid a sharp fall in revenue generation.

As the revenue situation has improved slightly thanks to the reopening of the economy, the government has softened its stance on the fund disbursement, allowing ministries and divisions to channel more funds to the low priority projects. 

The National Board of Revenue collected Tk 49,989 crore in the first quarter, up 4.12 per cent from Tk 48,017 crore, year-on-year.

The government has not spent much from Tk 56,051 crore it set aside in June as subsidies for the current fiscal year. The spending from the Tk 12,000 crore dedicated to the health sector owing to the health crisis has not sped up as well.

The government failed to reach its boro paddy and rice procurement target in the latest season, in another development that allowed it to borrow less. 

It had aimed to buy 8 lakh tonnes boro paddy during the procurement period from April 26 to September 15. But it could manage to buy 2.2 lakh tonnes paddy, falling short of the target by 72.5 per cent.

It procured 9.10 lakh tonnes rice during the period, down from the initial target of 11.50 lakh tonnes, data from the food ministry showed.  

In the quarter, the government made shit to commercial banks from the central bank to mobilise funds amid rising inflation. 

It borrowed Tk 26,303 crore from the commercial banks during the period and repaid Tk 23,270 crore to the central bank. 

Any borrowing from the central bank means the injection of fresh funds into the market. This usually creates inflationary pressures as the money supply increases.

Besides, the commercial banks are sitting on huge liquidity amid depressed demand for loans caused by the slowdown in economic activity, allowing the government to borrow at a far lower rate.

Additional liquidity in the banking sector stood at Tk 160,967 crore as of August, bringing down the call money rate.

The weighted average call money rate, the rate at which banks lend other lenders, fell to 2.70 per cent on October 14, down 41.43 per cent from 4.61 per cent on the same day a year ago, BB data showed.

Inflation rose to 5.97 per cent in September driven by an increase in the price of both food and non-food items, from 5.68 per cent in August and 5.53 per cent in July.

The government has set a bank borrowing target of Tk 84,980 crore for this fiscal year.