The government’s increasing reliance on bank borrowing due to fiscal pressures is raising concerns about the financial stability of the banking sector. Experts warn that excessive government borrowing could further deepen the crisis in banks already struggling with liquidity constraints.
The government’s debt from the country’s banking sector has surged unexpectedly in recent days. Between the start of the current fiscal year and March 10, the government has borrowed a net Tk 38,510 crore. Notably, as of January, the total borrowing stood at Tk 13,571 crore, indicating that in just the last ten days, the borrowing amount has nearly doubled compared to the first seven months of the fiscal year.
Officials attribute this spike in borrowing to lower revenue collection, a shortfall in expected loans from savings certificates, and reduced foreign loan disbursements. According to Bangladesh Bank, such debt accumulation is typically observed towards the end of a fiscal year. However, the amount borrowed so far remains below the targeted limit. The Awami League government had initially set a bank borrowing target of Tk 1,37,500 crore for the fiscal year, which was later revised down to Tk 99,000 crore by the interim administration. The central bank governor has projected that the government’s total bank borrowing will be around Tk 90,000 crore under the current economic conditions.
Despite the government’s commitment to a policy of expenditure contraction, certain financial obligations have expanded significantly. Debt servicing costs, including interest payments, have risen notably. Additionally, regular government expenses such as salaries and allowances continue to grow annually. Meanwhile, in the first six months of the fiscal year, the National Board of Revenue (NBR) recorded a revenue collection of Tk 1,56,446 crore, reflecting a decline of Tk 1,543 crore compared to the same period last year.
Further compounding the situation, net borrowing from savings certificates remains negative. Up to December, repayments in this sector exceeded fresh borrowing by Tk 2,244 crore. Simultaneously, commitments and loan disbursements from foreign sources have decreased, pushing the government to rely more on domestic banking channels for funds.
Bangladesh Bank data reveals that as of March 10, the government has borrowed Tk 85,663 crore from commercial banks in the current fiscal year while repaying Tk 47,153 crore in past loans to the central bank. This shift in borrowing from the central bank to commercial banks has led to a contraction in the money market. However, to counteract liquidity concerns, the central bank has provided Tk 29,410 crore in overdraft facilities to weaker banks, aiding in maintaining liquidity in the financial system.
With economic pressures mounting, policymakers will need to carefully manage the government’s borrowing strategy to ensure financial stability while meeting necessary expenditures.
In the wake of massive loan irregularities during the previous government, Bangladesh’s banking sector is facing mounting pressure as certain business groups, allegedly under state patronage, embezzled large sums in the guise of loans. With many of these loans now turning non-performing, several banks are struggling to return deposits to their customers. To mitigate the crisis, Bangladesh Bank has provided special loans in three phases since last November.
According to Bangladesh Bank data, as of March 10, the government’s total debt in the banking system stood at Tk 5,12,999 crore, up from Tk 4,74,490 crore at the end of last June. Debt in commercial banks has increased significantly to Tk 4,10,410 crore from Tk 3,18,441 crore during the same period. Meanwhile, the government’s outstanding balance with Bangladesh Bank has decreased to Tk 1,08,895 crore from Tk 1,56,480 crore in June. Additionally, the adjustment of Tk 48,746 crore, secretly taken from Bangladesh Bank under the ‘overdraft’ facility during the previous government, has now been reduced to Tk 6,742 crore.
Experts indicate that persistently high inflation has eroded people’s savings capacity, contributing to the deposit crisis in banks. Last year, bank deposits grew by only 7.47 percent. Simultaneously, the central bank has been repaying previous liabilities by issuing treasury bills and bonds. To control inflation, the policy interest rate has been raised to 10 percent. While inflation dropped to 9.34 percent in February, the central bank governor remains optimistic about further reductions in the coming months.
The banking sector’s liquidity stress, coupled with rising government debt, underscores the need for robust regulatory measures to restore financial stability and rebuild public confidence in the banking system.
According to data from Bangladesh Bank, the government has borrowed heavily from the banking system in recent months, exacerbating concerns over the sector’s ability to manage liquidity and meet depositors’ demands. Many banks are already facing challenges due to rising non-performing loans and a slowdown in deposit growth.
S M Mizanur Rahman, Secretary General of the Bangladesh Jubo Arthanitibid Forum, told The Daily Industry that the government’s excessive borrowing from banks is worsening the financial crisis in the sector. “The banking industry is already under pressure due to a lack of deposits and high default loans. The government’s growing dependence on bank loans will only deepen this crisis,” he said.
The fiscal pressure has been driven by lower-than-expected revenue collection, a decline in foreign loan disbursements, and reduced borrowing through savings certificates. With inflation still high, the government has been forced to issue more treasury bills and bonds to meet its financial obligations. However, this has further constrained liquidity in commercial banks, limiting their ability to lend to the private sector.
Amid these challenges, financial experts are calling for alternative revenue-generating measures and improved fiscal discipline to reduce dependency on bank borrowing. Without significant policy interventions, the ongoing financial strain on banks could have long-term repercussions for economic stability.
