The government's net bank borrowing fell sharply in the just concluded fiscal year (FY) due to lower implementation of the annual development programme (ADP) amid the pandemic.
Higher sales of national savings certificates (NSCs) have also pulled down the borrowing from the banking system, according to officials.
The government usually borrows from the banks to meet a portion of the budget deficit.
The aggregate net borrowing from banks dropped by nearly 64 per cent to Tk 260.78 billion in FY2020-21 from Tk 722.46 billion a year before, according to the Bangladesh Bank (BB)'s confidential report, obtained by the FE
Actually, the government borrowed Tk 460.17 billion as of June 30 last from the scheduled banks by issuing treasury bills (T-bills) and bonds, but repaid Tk 199.39 billion to the central bank, the BB data showed.
The net bank borrowing was more than 67 per cent lower than that of the revised target for FY'21.
In FY'21, the government slashed the borrowing target by more than 6.0 per cent to Tk 797.49 billion on the same ground. The original target was Tk 849.80 billion for the fiscal year.
Talking to the FE, a senior official familiar with the government's debt management activities said the bank borrowing dropped significantly in FY'21 because of lower ADP execution as well as higher sales of NSCs.
"Higher inflow of foreign loans particularly for recovering the Covid-hit economy has also helped lower the borrowing," he explained.
The yield on government securities dropped significantly following the lower bank borrowing in FY'21, a senior executive of a leading private commercial bank (PCB) said.
"The falling trend of yield on the government securities may continue if such lower borrowing continues," said the banker, replying to a query.
He also said that the business plans of banks have been hampered seriously due to the mismatch between the target and actual bank borrowing of the government.
Meanwhile, the implementation rate of the ADP in the first 11 months of FY'21 stood at 58.36 per cent due to a lack of capacity in utilising funds by major ministries and other government agencies amid the pandemic, according to Implementation Monitoring and Evaluation Division (IMED) figures.
On the other hand, the net sales of NSCs more than tripled in the first 11 months of FY'21 mainly due to lower deposit rates offered by the scheduled banks.
The government's net borrowing through selling savings tools jumped by 239.53 per cent or Tk 263.75 billion to Tk 373.86 billion during the July-May period of FY'21 from Tk 110.11 billion in the same period of the previous fiscal year, according to the official data.
Savers, particularly small ones, were now preferring to invest their hard-earned money in the NSCs instead of depositing the same with the commercial banks.
The government's savings schemes pay more than 11 per cent annualised profits, while the weighted average interest rate on bank deposits came down to below 5.0 per cent in the recent months, according to bankers.
The weighted average interest rate on deposits fell to 4.14 per cent in May 2021 from 4.36 per cent a month earlier, the BB data showed.
The government has already set a lower borrowing target from the banking system to meet partly the budget deficit in FY'22.
Its borrowing is set to be Tk 764.52 billion in FY22 from Tk 797.49billion revised target in the last FY, according to the budget documents.
Under the arrangement, the government will borrow Tk 516 billion through issuing long-term Bangladesh Government Treasury Bonds, generally known as bonds, and the remaining Tk 248.52 billion through T-bills.
Currently, three T-bills are being transacted through auctions to adjust government borrowing from the banking system. The T-bills have 91-day, 182-day and 364-day maturity periods.
Furthermore, five government bonds with tenures of 02, 05, 10, 15 and 20 years are traded in the money market.
