The government's internal debt burden, as indicated by the revised budget, will increase by Tk65,000 crore in the current fiscal year.
The finance ministry had initially aimed to keep the internal debt at Tk1.66 lakh crore in the main budget, but it has now been revised to Tk2.39 lakh crore mainly due to reduced revenue, decreased currency value, and increased expenses, including interest payments.
According to finance ministry officials, the revised budget for the fiscal 2022-23 indicates a 49% increase in the government's estimated borrowing from treasury bills compared to the original target in the budget.
Initially, the government planned to borrow Tk1.31 lakh crore through treasury bills in the outgoing fiscal year, but the revised budget has raised this figure to Tk1.95 lakh crore.
Additionally, the government has heightened borrowing from banks by revising the target to Tk1.11 lakh crore from Tk1.06 lakh crore in the original budget.
The higher borrowing has also increased the government's expenditure on interest by Tk7,516 crore.
Experts have expressed concerns about the long-term implications of the significant rise in government borrowing from treasury bills and banks.
This borrowing adds to the government's debt burden, reduces liquidity in the banking system, and potentially raises interest rates, they said.
Former Bangladesh Bank governor Salehuddin Ahmed told The Business Standard that the government's increasing borrowing will ultimately affect the private sector, especially in the manufacturing sector.
Finance division officials say that due to the government's austerity measures, the size of the revised budget for the current fiscal year has been reduced by about Tk18,000 crore.
However, the dollar crisis has led to a large deficit in revenue collection, discouraging imports and reducing domestic demand, they said.
Even then, despite the reduction in expenditure, the amount of the budget deficit is increasing, which needs to be eased by borrowing from banks.
In April, the government borrowed Tk29,697 crore from the banking system, the highest in a single month in the fiscal year so far.
According to the central bank, from July to April in FY23, the government borrowed a total of Tk82,057 crore from banks. Around 80% of this money was provided by the Bangladesh Bank.
Risks of bloated debt
The IMF, among its conditions for a $4.7 billion loan to Bangladesh, asked to include a chapter in the budget on medium-term fiscal risks and ways to address them.
As part of this, the government will announce the policy statement of the government in the next budget.
A finance division official told TBS that the government's position on the issue will be explained in the medium-term budget framework of the next fiscal year.
A review of various indicators of the several fiscal years has shown that there is no risk for Bangladesh in the medium term or in the next three fiscal years, the official mentioned.
Even the current fiscal year's massive subsidy arrears, increased borrowing from the banking sector, rising domestic liabilities and interest expenditure will not pose any fiscal risks in the medium term, he added.
The government has taken a loan of about Tk25,000 crore from the treasury bill in May this year. Another Tk18,000 to Tk20,000 crore is planned to be taken next June, according to Bangladesh Bank data.
On May 22, banks invested Tk3,035 crore in the auction of various treasury bills. On that day, the interest rate on a 91-day treasury bill was 6.70%. The rate was 7.02% for 182-day ones and 7.70% for 364 days term bills.
A senior official of the central bank said that the participation of banks in the auction of treasury bills has increased recently. It has increased tenfold from three months ago.
What the experts say
Economists say if the government borrows more from the banking sector, the private sector does not get loans as per demand, which has a negative impact on investment, employment generation and GDP growth.
As a result, it will be difficult to achieve the target of raising investment to 33.8% of GDP in the next budget, they said.
Moreover, if the expected level of investment is not achieved, it will not be possible to achieve 7.5% growth as per the target.
Salehuddin Ahmed told TBS, "Government borrowing more from banks is not good at all for the macroeconomy. The government is borrowing at high interest. Banks are getting 6% or 7% or more interest on treasury bills. This discourages banks from disbursing loans to the private sector."
However, bankers say, the liquidity crisis of the banks is easing and so is the demand for loans in the private sector.
Therefore, if the government increases its bank loans through treasury bills in the short term, it will not have a negative impact on the distribution of loans to the private sector, they remarked.
Selim RF Hossain, chairman of ABB and managing director of Brac Bank said additional debt of the government will not have any negative impact as there is not much demand for private sector loans or for loans for new projects.
The central bank's Chief Economist MD Habibur Rahman told TBS that the government's debt target is fixed by reviewing the macroeconomic situation.
"Therefore, there is no risk of negative impact on the market when the government borrows more or if the debt increases. Besides, the current liquidity situation in the banking system is good," he added.
"Other countries, including the US, have also increased debt from domestic sources. It is normal practice to take more loans towards the end of the financial year," he further said.