According to official statistics, government borrowed Tk 1,717 crore in the first eight months of the 2005-06 financial year, which was only Tk 172 crore during the corresponding period of the last fiscal year.

On the other hand, net foreign aid dipped sharply to US$ 339.4 million during July-February period of the current financial year from $ 647 million during the same period of the 2004-05 financial year.

"Substantial decline in foreign aid during the period forced the government to borrow more from the banking system," said a finance ministry official.

Government received a total of $ 644.4 million foreign aid while made a repayment of $ 305 million during the same period of current fiscal.

Total foreign aid amounted to $ 940 million in the first eight months of the last financial year while repayment was $ 293 million.

A huge amount of foreign aid is in the pipeline but rigid conditionality from lenders and donors along with institutional limitations of the government agencies in implementing foreign-aided projects is largely responsible for a poor performance in aid disbursement process, sources said.

Receiving loans from the banking system apart, government's net borrowing from non-banking system was Tk 1,956 crore during July-February period of the current financial year.

On the other hand, government's net borrowing from non-banking system during the same period of last financial year amounted to Tk 1,984 crore.

"Borrowing from the non-banking system went down after the interest rates on saving instruments were cut. But the government was forced to push the interest rates up again after the International Monetary Fund's prescription. Hike in interest rates has helped the government in attracting small savers to buy more saving certificates," said the finance ministry official.