Dhaka, May 5 As the government has reviewed the target to take bank loans for the budget of the current fiscal year, it has started borrowing more from registered banks than the Bangladesh Bank to rein in inflation.
Though the move has seen some successes, experts have said that it will impact investment negatively, if the government continues to take bank loans.
The government revises its borrowing target from banks in every April. The target was set in the budget of the current fiscal year at Tk 189.57 billion but increased it to Tk 270 billion.
It borrowed Tk 204 billion from the banks in the last fiscal year, which was Tk 50 billion more than the target fixed in the main budget and Tk 20 billion more than the target fixed in the revised budget.
According to latest Bangladesh Bank data, the government borrowed Tk 166.6853 billion from banks in the first 10 months (July-April) of the current fiscal year. Of which, the central bank has given Tk 28.2913 billion and the registered banks Tk 138.474 billion.
Only five months ago, the scenario was just the opposite as the government took Tk 110 billion loan from the central bank from July to November period while the total borrowing was Tk 190 billion.
Former governor of the Bangladesh Bank Mohammad Farashuddin says that the trend to take more loans from the central bank is similar to committing suicide.
"The government should reduce taking loans from the entire banking system," he said.
"But," he added, "If the flow of loans from the registered banks increase, the flow of loan to the private sector will decrease, which will impact investment and the entire economy."
Rather the government should pay more attention to increase revenue and foreign aid, he said.
If the central bank meets government demands by increasing reserved money, it brings inflation, economists say. It is said that if Tk100 is released in the market through this system, it multiplies to Tk 475 in the market, leading commodities to become pricier.
Former finance advisor to the caretaker government A B Mirza Azizul Islam said the government has to borrow more from the banks to buy fuel oil for the rental power plants.
The government opened the current financial year by taking big loans from the banks. In the first 100 days of the financial year, the government borrowed Tk 95 billion from banks.
It set a target to take Tk 189.57 billion of loan from banks in the current fiscal year. After six months, the borrowing exceeded the target and reached Tk 204 billion. At one stage, it was Tk 220 billion, with more than half from the central bank.
Facing criticism from several quarters, including the economists and the main opposition BNP for the borrowing, the government tried to borrow less from the banks and the borrowing was within Tk150-180 billion in past three months.
According to the Bangladesh Bureau of Statistics, point-to-point inflation in March was 10.10 percent. The rate has been a double-digit sum for past 10 months.
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