The government borrowed a record Tk 94,739 crore from Bangladesh Bank (BB) until June 21 of FY2022-23 to meet the budget deficit as commercial banks are now facing a tight liquidity situation.

Experts have criticised the borrowing from the central bank as the same as printed money entering into the economy and fuelling inflation.

The government borrowed a total of Tk 1,20,621 crore from the banking sector — Tk 94,739 crore from BB and Tk 25,881 crore from commercial banks — between July and June 21 of FY23, according to the latest BB data.

A senior official of the central bank, requesting anonymity, said this is the highest ever the government borrowed from BB in the past few years.

The official said that the government borrowed higher amounts from BB as the commercial banks have been facing a severe liquidity crisis due mainly to the volatility in the foreign exchange market.

However, Zahid Hussain, former lead economist of the World Bank’s Dhaka Office, told The Financial Post that even though money is not being printed directly, it can be said that new money has been created in the accounting process.

It is not a good process for a vibrant economy and the inflation rate is rising due to direct borrowing from BB, he added.

Inflation raced to an 11-year high of 9.94 per cent in May, according to Bangladesh Bureau of Statistics (BBS) data.

Zahid said, “To reduce inflation, we need to reduce money flow in the market. If the government borrows from commercial banks, the flow of credit to the private sector will decrease. It would help tame the inflation.”

All the countries across the world are doing it, he said. But the government did the opposite by taking loans directly from BB and it increased money flow in the market, he added.

During the unveiling of the new monetary policy recently, when asked about the high borrowing from the central bank by the government, BB Governor Abdur Rouf Talukder told reporters that printing money is a continuous process and every country is doing the same.

He said BB collected Tk 1,30,000 crore from the banking sector by selling the US dollar to the banks and that money was given to the government.

Until Monday, the central bank pumped $13.50 billion to banks in FY23, which ends on Friday, to meet the US dollar crisis.

If the government purchases essential goods or services through this borrowed money, then it will not fuel inflation, Talukder said.

The target of government borrowing from the banking sector was set at Tk 1,11,608 crore in the national budget for FY23. The target was later reset at Tk 1,15,425 crore in the revised budget.

However, the government’s bank borrowing amount until June 21 is 4.50 per cent higher than the revised target.

The government’s total bank borrowing was at only Tk 47,909 crore during the same period of FY2021-22.

The senior BB official said that government borrowing has increased due to the shortfall in revenue income.

In the 11 months of FY23, the revenue collection target for the National Board of Revenue was Tk 3,14,933 crore, but the board collected around Tk 2,80,776 crore during this period.

However, the government plans to borrow Tk 1,32,395 crore from local banks to finance the projected deficit in the Tk 7,61,785 crore national budget for FY2023-24.

This target is 14.70 per cent higher than the revised target of Tk 1,15,425 crore for FY23.