Central Bank Prints Tk70,000 Crore to Support Government Budget

According to Bangladesh Bank data, the net sales of savings certificates in April reached TK581 crore, marking the highest figure for the current fiscal year (FY23). However, the net sales for the first 10 months remained negative at Tk3,579 crore due to government borrowing against repayments. Lower interest rates, investment conditions, and higher inflation have contributed to the decline in sales.

Private sector credit growth in Bangladesh has experienced a decline for the fourth consecutive month, reaching a growth rate of 11.28% in April, the lowest in 13 months. This slowdown reflects a slump in business activities caused by import curbs. Despite sufficient liquidity in the banking system, loan demand from private sector businesses has slowed down significantly. This credit growth falls below the monetary target set for the current fiscal year.

The Bangladesh Bank has injected Tk70,000 crore of new money into circulation during the current fiscal year to support the government's budget expenditure, raising concerns about inflation. The central bank began printing money due to liquidity constraints in banks. Despite improvements in liquidity, new money continued to be injected to maintain interest rates below 9% for treasury bills and bonds.

The Bangladesh Bank (BB) has decreased the size of the Export Development Fund (EDF) from $7 billion to $4.77 billion as part of its compliance with the International Monetary Fund's (IMF) requirements to calculate foreign exchange reserves according to international standards. By September, the size of EDF loans will be further reduced to $2 billion.

As the fiscal year comes to an end, the government of Bangladesh is relying on banks, particularly the central bank, to secure funds to cover its expenses due to a drop in revenue collection. In April, the government borrowed Tk29,697 crore from banks, marking the highest amount borrowed in a single month during the fiscal year 2022-23. From July to April, the government borrowed a total of Tk82,057 crore from the banking system, with around 80% of this amount provided by the central bank.

The Bangladesh Bank (BB) has made another reduction in the size of the Export Development Fund (EDF) from $5 billion to alleviate pressure on foreign exchange reserves, aligning with the International Monetary Fund's (IMF) recommendation. The outstanding size of EDF loans now stands at $4.77 billion, according to BB Executive Director and spokesperson Md Mezbaul Haque. This reduction comes as the central bank becomes cautious about foreign currency lending under the EDF due to some clients not repaying loans on time.