Despite a drought in bank lending to the private sector, the government is borrowing heavily, leading to a rapid rise in government debt within the banking system. With three months still remaining in the current 2025-26 fiscal year, the government has already borrowed more than its full-year target.
The borrowing target from banks was set at Tk1.04 trillion. However, as of 30 March, the government had already borrowed Tk1.06051 trillion. As a result, the total outstanding government debt in the banking system has reached Tk6.56956 trillion.
Relevant officials said the government sets annual borrowing targets to finance the budget deficit. This year, although expenditure has increased due to the war and other factors, revenue collection has not grown accordingly.
At the same time, expected borrowing from foreign sources has not materialised. Consequently, to meet its financing needs, the government has had to hold special auctions of treasury bills and bonds outside the regular auction calendar. On 1 April, it raised Tk50 billion through such a special auction, and another special auction for Tk50 billion has been scheduled for today, 8 April.
As a result, it is difficult at this stage to predict where total borrowing will ultimately stand. In the original budget for FY2024-25, the government had set a borrowing target of Tk1.375 trillion from the banking system, which was later revised down to Tk990 billion. In the end, the government borrowed Tk723.72 billion.
According to Bangladesh Bank data, of the borrowing so far this fiscal year, Tk321.93 billion has been provided by the central bank, bringing the government's outstanding debt with Bangladesh Bank to Tk1.30616 trillion.
Meanwhile, the government has borrowed Tk738.58 billion from commercial banks over the past nine months, raising the outstanding amount there to Tk5.26339 trillion. At the beginning of the current fiscal year, the government's borrowing requirement was relatively low; up to October, repayments exceeded borrowing by Tk5.03 billion.
Bangladesh Bank data also show that, as in January, private sector credit growth stood at 6.03 percent in February. The contraction in credit flow to the private sector is negatively affecting investment, production, and employment.
Macroeconomic instability, high interest rates, weaknesses in the banking sector, and political uncertainty, along with the energy crisis, are discouraging entrepreneurs from taking new loans. In such a situation, analysts believe the private sector-one of the main drivers of the economy-is effectively operating at a slow pace.
They also warn that the Iran conflict could have further adverse effects on the private sector in the future. According to Bangladesh Bank, total credit disbursed to the private sector in February stood at Tk17.85976 trillion, compared with Tk17.47686 trillion a year earlier.
