Sluggish ADP implementation weighs on government’s net bank borrowing

The government has reined in bank borrowing after a spree early in the fiscal year, with analysts blaming the sluggish pace of development work.

Bangladesh Bank data show the government borrowed Tk 166.01 billion from commercial banks in July and August, the first two months of the fiscal year, while repaying Tk 37.28 billion owed to the central bank.

That leaves net borrowing from the banking system at Tk 128.72 billion for the period. July accounted for Tk 74.69 billion, falling to Tk 54.03 billion in August.

The first 13 days of the fiscal year alone saw net borrowing of Tk 92.09 billion, of which Tk 54.14 billion came from Bangladesh Bank and Tk 37.95 billion from commercial banks.

Central bank borrowing pumps fresh money into the economy, potentially adding to inflation by increasing demand.

Inflation has eased but remains above 8 percent.

Fuel prices have been raised by Tk 20 a litre in one go, increasing transport costs and adding to price pressures across the economy.

The new government pay scale has also sharply increased salaries and allowances for public employees.

Central bank officials say concerns that these factors could push inflation higher help explain why the government is now repaying Bangladesh Bank rather than borrowing from it.

Bangladesh Bank spokesman Arief Hossain Khan told bdnews24.com that borrowing typically swells at the start of a fiscal year.

“Revenue collection is low, and more has to be borrowed to meet essential expenses,” he said. “That happened this time too. It is easing now, but it could rise again.”

Borrowing from banks or the public to cover budget deficits is a normal process, Arief said, as the government needs to finance development projects.

Supplying the government with loans through treasury bills and bonds when required is part of the central bank's role, he added.

“We are only doing that job. How the loans will be repaid is for the government to worry about. If it cannot collect the revenue it expects, it has to run the country on borrowing. That is natural.”

Commercial banks' outstanding loans to the government stood at Tk 6.08 trillion on Aug 31, up from Tk 5.91 trillion at the end of June.

Outstanding central bank borrowing fell to Tk 903.22 billion in August from Tk 940.51 billion in June.

The latest report from the Implementation Monitoring and Evaluation Division (IMED) of the planning ministry shows less than 2 percent of the Annual Development Programme (ADP) was implemented in the first two months of the fiscal year.

Ministries and divisions spent Tk 57.10 billion during the period, just 1.85 percent of the total ADP.

Bangladesh has never before recorded such a low rate of development spending in the first two months of a fiscal year.

For FY27, the government has set a target of borrowing Tk 1.12 trillion from the banking system. It has already drawn 11.49 percent of that in two months.

The government sets a bank borrowing target in the budget each year to help finance the deficit.

The FY26 target of Tk 1.04 trillion was raised to Tk 1.18 trillion in the revised budget, but actual borrowing ultimately reached Tk 1.32 trillion.

In FY25, the government borrowed Tk 1.19 trillion against a target of Tk 1.17 trillion.

The National Board of Revenue (NBR) previously published monthly revenue figures in the first week or around the middle of the following month. Three months into the fiscal year, covering July to September, it has yet to release figures for a single month.

NBR officials say the figures have not been released because revenue collection has fallen short of target.

Zahid Hussain, former lead economist at the World Bank's Dhaka office, told bdnews24.com it was positive that the government was repaying the central bank rather than borrowing from it.

“That may ease the pressure on inflation,” he said. “But the fuel price rise and the pay increase for government employees will push up government spending, and inflation too.

“There are hardly any steps to boost revenue collection. So spending will climb further, and so will borrowing.”

The latest Bangladesh Bureau of Statistics (BBS) data put point-to-point inflation at 8.26 percent in August, down from 8.32 percent in July.

Announcing the October-December monetary policy on Wednesday, Bangladesh Bank Deputy Governor Habibur Rahman warned of several risks to the inflation outlook.

Higher fuel prices could raise transport and production costs, he said, while implementing the new government pay structure could add to inflationary pressure.

“The recent decline in overall inflation is not enough proof of a sustained fall, because inflation remains vulnerable to supply and cost pressures,” he said.

Habibur cited rising global fuel prices, the stalemate in the Strait of Hormuz, the recent increase in administered fuel prices and the possible impact of the national pay structure among the main risks.

“Easing monetary policy before the right time could lift inflation expectations and delay the return to the inflation target,” he added.