Govt’s bank borrowing target may shrink in next budget
The government is planning to significantly reduce its bank borrowing target in the upcoming fiscal year as it aims to narrow the budget deficit by scaling down the overall budget size.
The target is set to be slashed by nearly 25 percent in the budget for FY26, dropping to Tk 104,000 crore.
For all latest news, follow The Daily Star's Google News channel. The budget deficit for the outgoing fiscal year is also likely to shrink by around Tk 30,000 crore to Tk 226,000 crore, according to a finance ministry official.
To manage the deficit in the upcoming budget, the government is expected to rely more on foreign borrowing rather than domestic sources, especially banks, as interest rates on foreign loans are comparatively lower.
The slow implementation of the Annual Development Programme (ADP) in the current fiscal year and efforts to curb inflation are also expected to contribute to a reduced bank borrowing target.
To manage the deficit in the upcoming budget, the government is expected to rely more on foreign borrowing rather than domestic sources
As a result, the national budget for FY26 is projected at Tk 790,000 crore -- Tk 7,000 crore less than the original budget for the current year, which would mark the first time in recent memory that the overall budget would see a contraction.
Zahid Hussain, a former lead economist at the World Bank's Dhaka office, said the government's move to reduce bank borrowing is linked to its lower deficit target.
"Bank borrowing should be reduced because if the government takes a large portion of available credit, the private sector won't have enough access to loans," he added.
The interest rate on treasury bonds and bills is currently very high. If banks have a greater opportunity to lend money to the government, they will be less inclined to invest in the private sector, he said.
"We will not implement the budget by borrowing from banks or printing money. This budget will be implementable," Finance Adviser Salehuddin Ahmed told journalists yesterday after a meeting of the advisory committee on public procurement.
He also said the upcoming budget would not have a large deficit, adding that the government would refrain from borrowing to finance mega projects.
Aided by bank borrowing, budget sizes have ballooned in recent years despite low revenue collection.
Total outstanding domestic borrowing stood at Tk 942,507 crore as of January 2025, up from Tk 722,591 crore in June 2021.
The government is set to borrow Tk 125,000 crore from domestic sources, including both banks and non-bank institutions in FY26. Of this, Tk 21,000 crore is expected to come from non-bank sources, such as savings instruments and treasury bond sales to corporates and individuals.
Even in the current fiscal year, the borrowing target was revised to Tk 117,000 crore from Tk 160,900 crore in the original budget due to low ADP implementation and the adoption of a tight fiscal policy.
Of this, bank borrowing was revised down to Tk 99,000 crore from the original Tk 137,500 crore.
However, bank borrowing stood at Tk 15,531 crore in the first seven months of the current fiscal year, falling far behind the revised target due to low ADP implementation.
Contrary to recent years, the government has not borrowed from the central bank during this period. Instead, it repaid Tk 59,486 crore.
"This is called quantitative tightening, which supports the implementation of a contractionary monetary policy and helps reduce inflation," Hussain said.
The government also repaid more than it borrowed from savings instruments during the same period. Sales of savings instruments stood at Tk 36,463 crore, while repayments against the principal amounted to Tk 43,476 crore.
Hussain said this was due to a decline in people's savings, driven by high inflation.
The government borrowed Tk 31,625 crore from treasury bills and bonds in the last seven months.
"This trend will be instrumental in introducing a secondary bond market," Hussain added.
However, the government's borrowing from commercial banks reached Tk 75,018 crore as of January this year.
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