DHAKA: Bangladesh's government borrowed about $700 million from commercial banks in July and August, the first two months of the new fiscal year, the central bank said on Saturday.
A senior central bank official said such borrowings were more than double those in the same period last year.
"The trend of borrowing is rising, which is a concern for the central bank," said the official, who asked not to be identified.
Bangladesh is struggling to reduce its budget deficit and a senior finance ministry official said on Thursday that it would ask the World Bank for a $1 billion loan to help bridge the gap. The government has already requested a similar loan from the International Monetary Fund to support its balance of payments.
Economists -- and the Asian Development Bank in a report last week -- have warned that borrowing by the government from commercial banks risks squeezing out private sector borrowers, which could hamper Bangladesh's economic development.
The ADB's country director Thevakumar Kandiah told a press conference on Wednesday that authorities needed to keep a close eye on the amount of budget finance from the banking system.
"If government borrowing from the banking sector goes too high, it will put pressure on private sector growth," he said while presenting an updated assessment of the economy.
Bangladesh is targeting $2.53 billion in borrowing from domestic banks for the current fiscal year.
"Such borrowing will create an uneven competition with the private sector, if the government takes loans (at a) preferential rate or imposes any pressure on the banks,' said Shah A. Sarwar, managing director of Trust Bank, a leading private sector lender.
He said high bank borrowing was an indication of slower foreign direct investment into Bangladesh and inadequate foreign assistance.
Bankers and economists have said slow flow of foreign funds and remittances and the pressure of development expenditures have forced the government to rely on funding from the banks.
The ADB provided $745 million in budget support to Bangladesh in fiscal year 2009/10 to help offset the impact of the global financial meltdown.
Bangladesh wants to contain its budget deficit within 5 percent of gross domestic product (GDP) for the year to June 2012, as it did in the previous fiscal year.
Copyright Reuters, 2011
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