Govt Borrowing From Bb
Cap on wholesale borrowing thru overdraft recommended
The government’s cash and debt management committee has made proposals to impose cap on government borrowing from Bangladesh Bank through overdraft, said official of the central bank. As per the CDMC proposals, the limit of government borrowing through the overdraft should not cross Tk 4,000 crore, so that the government will be brought under a well disciplined situation to take borrow from the central bank, they said.
Besides, the government will have to keep its securities against the overdraft loan and a fixed time-frame of the borrowing tenure should also be fixed, they said.
The CDMC placed the proposals in its quarterly meeting held on October 23 at the finance ministry.
Finance secretary Fazle Kabir presided over the meeting while senior officials of the central bank and the MoF attended the meeting.
All members of the CDMC supported the proposal to impose cap on the overdraft loan and the committee will make final decision in the quickest possible time in this regard, a BB official, who attended the meeting, told New Age on Monday.
He said the government took borrow from the BB through overdraft loan when it needed more loan excluding the scheduled auction calendar from the banking sector.
The government usually receives loan from the banking sector by issuing treasury bills and T-bonds as per scheduled date of its borrowing auction calendar, he said.
The overdraft loan is a short-term credit ranging one to two months and the government has to pay 6.25 per cent interest against the loan, he said.
But, the government earlier took huge amount of loan from the central bank through the overdraft and it did not repay the loan due to absence of repayment tenure of the loan, he said.
The government borrowing through the overdraft crossed Tk 20,000 crore and the BB had to block the overdue loan in July 2006.
Under the circumstances, the BB proposed that the government should repay Tk 1,500 crore of the blocked loans in every financial year.
As per proposal of the BB, the government repays Tk 1,500 crore in every fiscal year and the overdraft blocked loan stood at Tk 14,7651 crore as on October 7.
According to the CDMC proposal, the government would not be able to take loan from the BB by drawing overdraft if its borrowing figure reached at Tk 4,000 crore.
After repayment of the overdraft loan from the ranging of Tk 4,000 crore, the government will take loan further by drawing the overdraft, the official said.
Inflation usually increases if the government takes borrowing from the central bank by drawing overdraft, another BB official said.
The government generally issues fresh notes to the government against its overdraft loan which created inflation on the market, he said.
The CDMC in the meeting proposed that the government should repay the overdraft loan within one month to the BB, he said.
The BB will issue 28-day T-bills against the overdraft loan if the government fails to repay the loan within one month, the official said.
The BB made a proposal in the CDMC meeting to reintroduce the 28-days T-bill so that it (T-bill) will be issued against the overdraft loan, he said.
The official said the 28-day T-bill would be introduced as early as possible in accordance with the CDMC proposal.
He said the CDMC had placed the proposals to impose cap on the overdraft loan in accordance with the IMF suggestions.
The cash and debt management technical committee also discussed the issue in a meeting on October 30.
As per directions of the CDMC, the CDMTC had discussed about the perspective to impose cap on overdraft loan, the official said.
He said ‘The government will be able to borrow from the BB like the previous period despite imposition of cap on overdraft as the government borrowing limit through Ways and Means advances loans was increased in July last.’
The government borrowing limit through the low-interest loan was increased to Tk 4,000 crore from Tk 2,000 crore for a financial year.
The rate of interest of the WMS is 5.25 per cent.
Courtesy of New Age
