Over the past decade, the government has consistently raised revenue targets in each budget while struggling to meet these collection targets. The government has increasingly relied on bank borrowing and foreign loans to bridge the significant budget deficit. If this trend continues, Bangladesh risks falling into a debt trap, potentially needing to borrow money just to repay existing loans.
The banking system is in disarray, with loan defaults becoming a common business practice. Government borrowing from banks is projected to absorb nearly 80% of total bank deposits in the fiscal year 2025. This heavy reliance on bank funds will strain the private sector and the labour market since 86% of employment is in the private sector, compared to 14% in the public sector.
These concerns were highlighted during a post-budget discussion by the Editors' Council and the Newspaper Owners' Association of Bangladesh (Noab). Economist Wahiduddin Mahmud, a former advisor to Bangladesh's caretaker government, emphasized the severity of the debt trap and the banking sector's fragile state. He warned that economic recovery is unattainable without addressing these vulnerabilities.
Revenue collection targets are not being met due to the lack of effective government reforms, Mahmud stated. As a result, the government is compelled to resort to foreign loans and bank borrowing. If this continues, Bangladesh will inevitably fall into a debt trap.
"An atmosphere of confidence has not been created in the economy. We see an unbridled circulation of black money in the economy and capital is flying out of the country."
He also said: “Due to the lack of timely action, inflation has taken a strong long. Credible policies should have been taken at the right time. Several fundamental weaknesses have emerged due to wrong policies over a long period.
“Lack of proper policies leads to money laundering, an increase in defaulted loans, a continuous decline in reserves, a decline in revenue, and the generation of black money. It is not possible to overcome these problems without fundamental policy changes,” he explains.
Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), expressed concerns about the deteriorating state of the banking sector. Many depositors are reporting difficulties in withdrawing their money. She criticized the amendments to the Banking Company Act, which she believes favor vested interests and introduce new ways to reschedule loans.
"Reality was not considered in making the budget. We see a controlled economy, despite claims that it is market-based. The budget benefits the powerful and corrupt," Khatun remarked.
At the same event, Salehuddin Ahmed, former governor of Bangladesh Bank, pointed out contradictions in the budget. "The budget is said to be contractionary, but the deficit isn't. The reliance on bank loans to cover the deficit has increased.
“If the government borrows more, it leaves less for the private sector, impacting employment. Small and medium industries will be most affected. We might soon need to borrow money to repay loans," Ahmed warned.
He attributed the banking sector's dire condition to "an extreme lack of good governance," noting that loan defaults have become a business model. "You take a loan from the bank and never pay it back," he added.
Dr Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI), criticized the large public expenditure in the proposed fiscal budget. Although the government has proposed cuts in certain sectors, the total spending remains high. He suggested evaluating the necessity of ministries like the one for jute and textiles. For comparison, Mansur highlighted that the US has only 11 executive departments, while Bangladesh has 50-60 ministries.
Muslim Chowdhury, Former secretary of the finance division said: “The actual amount of defaulted loans in the country's economy will be 80 to 90% of this year's budget. But there is no announcement about this. He also said that there is no initiative to transform the vision of the budget presented in the parliament for the next fiscal year.”
“The government has to take bold and tough decisions during the first and second year of the term. But there is no commitment from the government in this regard,” he also added.
Power and Participation Research Centre (PPRC) Executive Chairman Hossain Zillur Rahman said the finance minister mentioned three big actors in the proposed budget – the International Monetary Fund (IMF), the oligarchs and the bureaucracy.
"There is a system [at play] so that their facilities are not reduced. On the other hand, public welfare has not been thought of particularly," he said.
Zillur, also the advisor to the former caretaker government, said that the finance minister did not pay heed to or consider hard-working entrepreneurs and workers. Because there is no initiative to reform the tax administration in this budget. The business climate will not improve.
The cost of using the internet on mobile phones has increased. The cost of buying a motorcycle has increased. The tax-free life expectancy has not increased.
Noab chairman, AK Azad; Mahfuz Anam, editor and publisher of The Daily Star and president of the Editors Council also spoke at the event.
