Govt. not borrowing from banks!

It is certainly big news that the government did not borrow from the banking system last fiscal year. Not only that, it also repaid a big portion of debts with the banks. This would have gone down as a major financial story in the past with the government cheered for avoiding indebtedness to banks leaving room for credit expansion in the private sector. But the parameters have changed--banks are sitting idle on excess liquidity, and with their high interest lending rates, private sector's demand for credit is constrained. And the government too opted not to borrow from the banks in the last fiscal year. Obviously, the fiscal implications of the changing equations between the banks and the private and public sectors need to be monitored closely to ensure macro-economic balance.  

Although the government had set the target of garnering Tk 31,714 in loans from the banks, it just didn't have to because of a convenient combination of factors. In the first place, sluggish implementation of development projects even under revised ADP curtailed the need for funds. Secondly, and perhaps more importantly, a rise in the sales of saving instruments despite a cut-back on interest by 2 percentage points induced the government to borrow from them. As a result, the government's borrowing through saving instruments stood at Tk 26,562 crore in the last fiscal year. This almost approximated the target the government had set for bank borrowing but abandoned for an expedient source. The point to note, however, is that higher repayment rate on saving certificates would place a fiscal burden on the government.