Net govt borrowing rises by Tk13,000cr

The government's reliance on bank borrowing to finance its operating and development expenditure has grown further.

From the beginning of the current FY27, significant pressure appeared in budget income-and-expenditure accounts—a strain that has become more evident over time.

With domestic revenue collection falling short of target and foreign disbursement slowing down, the government has ultimately had to rely on banks to meet its spending needs.

This has directly impacted public bank borrowing: in just the first two months of the fiscal year, government bank borrowing grew more than 5-fold compared to the same period last year.

According to updated data from Bangladesh Bank, the government borrowed Tk16,601 crore from commercial banks in July and August of the current fiscal.

During the same period of the previous fiscal year, this figure was Tk3,256 crore.

This means commercial bank borrowing by the government grew by more than 5 times year-on-year.

However, during the same period, the government repaid a portion of its outstanding loans from Bangladesh Bank.

After paying back Tk3,728 crore to the central bank in July–August, the government's net borrowing from the overall banking system stood at Tk12,872 crore for this period.

The government has set a target to borrow Tk112,000 crore from the banking system in the current FY27.

In just the first two months, net borrowing has already reached 11.49% of that target.

In contrast, during the same period last fiscal year, the government made net repayments to the banking system rather than taking on new debt.

Consequently, this early borrowing surge points to added pressure on government financial management.

Economists and bankers attribute the rising bank debt primarily to sluggish revenue collection and growing government expenditure.

Value Added Tax (VAT) collection dropped by nearly 20 percent year-on-year in the first two months of the fiscal year.

Changes to VAT filing rules also impacted revenue flows: after transitioning from monthly payments to a quarterly scheme, efforts are now underway to reinstate monthly VAT collection.

On the other hand, while revenue fell, government spending did not.

The government has had to spend on the new pay scale for public employees, energy sector costs and subsidies, and various development projects.

As a result, reliance on bank borrowing to bridge the deficit has increased.

With weak credit demand in the private sector, banks currently hold relatively high liquidity.

As private sector credit growth dipped below 5%, banks increased their investments in government Treasury bills and bonds.

Bankers state that for now, higher government borrowing is not creating major crowding-out pressure on the private sector.

However, declining interest rates on government securities are squeezing bank earnings, with yields in some cases falling below deposit rates.

According to Bangladesh Bank data, as of August 30, the government's total outstanding debt to commercial banks reached Tk608,025 crore, up from Tk591,424 crore at the end of June.

Meanwhile, outstanding debt to Bangladesh Bank fell from Tk94,051 crore in June to Tk90,322 crore in August.

Taken together, the government's total outstanding debt to the banking sector stands at nearly Tk700,000 crore.

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