The ousted Awami League government borrowed a whopping amount from both banks and non-bank sources in the opening month of the current fiscal year 2024-25. In July, its borrowings from domestic sources amounted to over Tk 232 billion, says a latest report of Bangladesh Bank on debt situation.
For the government, there are two internal sources to borrow – the banking system and the non-bank institutions. It took the majority share of the loans in the first month from the banking sector.
According to the Bangladesh Bank report, the net borrowing from the banking system in July was Tk 189.08 billion, which is up by Tk 182.18 billion from the borrowing – around Tk 6.9 billion – in the corresponding month of the previous year.
The government borrowing rose significantly during the quota reform protests. When the protests turned violent, regular activities, including business, were affected adversely. To deal with the adversities, the government turned to the banking system for large loans.
In July, the government borrowing from non-bank sources also rose sharply by Tk 33.61 billion to Tk 42.94 billion, compared to only Tk 9.33 billion borrowed in the previous fiscal's opening month.
Economists have attributed the sudden spike in domestic borrowings in July to the political unrest, as the month witnessed the job quota reform protests evolving into a mass movement. By mid-July, the movement had intensified and turned violent, eventually leading to the fall of the government at the beginning of August.
The Awami League government had declared a general holiday and imposed a curfew to deal with the protests, which severely disrupted business and daily life. The measures led to a decline in revenue collection and prompted the government to borrow to meet its expenses.
Khondaker Golam Moazzem, research director of the Center for Policy Dialogue (CPD), said revenue collection was in a negative trend due to the movement in July, while access to foreign loans was disrupted. Against such a backdrop, the government had fewer available funds and had to rely more on domestic borrowings to meet regular expenses.
He, however, pointed out that there is an information deficit on how the borrowed funds were spent. It is not clear in which sectors the loans were spent or how efficiently the funds were used.
Khondaker Golam Moazzem further explained that the demand for loans was significantly low in July due to a slowdown in business and investment. That is why the private sector experienced no significant impacts from the higher borrowing by the government.
For the fiscal year 2024-25, the government has set a target of Tk 1.61 trillion to borrow from domestic sources – Tk 1.375 trillion from the banking system and Tk 234 billion from the non-bank sources.
A large portion of the non-bank borrowing is supposed to come from the sale of savings certificates as the government aims to raise Tk 154 billion from this source throughout the year.
According to Bangladesh Bank data, nearly 14 per cent of the annual borrowing target from the banking sector was already taken in the first month, July, of the fiscal year. Similarly, more than 18 per cent of the targeted non-bank borrowing was completed in the month.
As of the end of July, the government's accumulated debt from the banking sector reached nearly Tk 4.88 trillion, up by around 1 trillion from Tk 3.87 trillion recorded at the end of July last year. Its accumulated debt from non-bank sources was Tk 4.38 trillion at the end of July, compared to Tk 4.22 trillion a year earlier, an increase of around Tk 155 billion.
In total, the government's accumulated domestic debt – from both bank and non-bank sources – stood at Tk 9.26 trillion at the end of July, compared to Tk 8.09 trillion at the end of July last year