AKM ZAMIR UDDIN

Playing with fire is what the government is doing to meet its deficit financing.

In a time of elevated inflation, the government has started to borrow heavily from the Bangladesh Bank to meet the budget deficit, in a move that is set to push up the consumer price level further.

Between July 1 and November 3 this year, the government borrowed Tk 28,378 crore from the central bank, data from the BB showed. In all of the last fiscal year, it borrowed Tk 31,403 crore from BB.

“Borrowing from the central bank means printed money is being injected into the market -- this will fuel inflation,” said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

In other words, the volume of notes and coins out in circulation is increasing. And such a form of money can multiply as much as five times in Bangladesh through fractional reserve banking, a system in which only a fraction of bank deposits are backed by actual cash on hand and available for withdrawal.

So the Tk 28,378 crore borrowed by the government may end up being Tk 141,890 crore eventually.

The extra money in a certain section of people’s hands means it will create demand for goods, which, in turn, will push up the price level.