The proposed national budget of approximately Tk938,000 crore for the upcoming FY27 brings a mix of high macroeconomic expectations and multi-layered structural challenges.
To implement a fiscal blueprint of this magnitude, the government must mobilize massive financial resources.
Alongside ambitious domestic revenue targets, state planners are relying heavily on both external and internal borrowing to plug the fiscal deficit.
Specifically, the government’s plan to borrow a net Tk112,000 crore directly from the domestic banking sector has triggered fresh anxieties among macroeconomists and policy analysts.
According to projections from the Finance Division, the overall budget deficit for the upcoming fiscal year will reach approximately Tk243,000 crore, representing roughly 3.6% of the country’s Gross Domestic Product (GDP).
To bridge this gap, the government intends to secure Tk116,000 crore in net foreign financing and Tk127,000 crore from domestic sources.
The lion's share of this domestic financing is slated to be drawn directly from commercial banking desks.
The net target of Tk112,000 crore from the banking system reflects the state's structural reliance on commercial lenders to bankroll public spending.
While this figure is nominally lower than the Tk118,000 crore target set in the revised budget of the outgoing FY26, it stands Tk8,000 crore higher than the originally proposed baseline of Tk104,000 crore.
Economists are divided on the exact timeline and severity of the impact this continuous borrowing will have on the broader monetary ecosystem.
Prof Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), points out that the real-world friction caused by public debt mobilization depends directly on the prevailing liquidity situation within commercial banks.
He notes that if commercial banks maintain healthy surplus liquidity buffers, the state's borrowing program may not immediately strangle private credit.
This is primarily because the government does not deplete the funds in a single transaction; rather, it liquidates debt lines incrementally throughout the fiscal year. However, Dr. Rahman warns that the central bank must strictly monitor private sector credit growth, import financing demands, and overall monetary velocity to ensure that alternative financing lines remain viable.
Taking a more critical view, M Masrur Reaz, chairman of Policy Exchange Bangladesh, identifies the high public borrowing target as a direct threat to private sector recovery.
He argues that private credit demand is currently soft due to high domestic inflation, elevated energy overheads, and high commercial bank lending rates. However, once macroeconomic conditions normalize and inflation cools, private enterprises will inevitably seek to expand capacity, causing credit demand to spike.
If the government continues to absorb massive tranches of loanable funds from commercial banks during that recovery phase, the private sector will face a severe "crowding out" effect.
In macroeconomic terms, crowding out occurs when heavy state borrowing depletes the credit pool of commercial banks, leaving private enterprises unable to secure capital.
As governments are backed by sovereign guarantees, they represent the safest possible borrowers for commercial banks.
Consequently, banks naturally prefer to park their surplus funds in risk-free government Treasury Bills and Bonds rather than risking capital on private industrial loans, trade financing, or new entrepreneurial projects.
Revenue shortfalls and downward spiral
A secondary concern for market analysts is the historical inaccuracy of domestic revenue projections.
National budgets regularly outline optimistic tax mobilization targets that the National Board of Revenue (NBR) fails to hit by the close of the fiscal year.
When revenue collections lag, the government routinely falls back on the banking system to cover the unexpected midday deficit.
This structural slippage occurred during the outgoing fiscal cycle: the bank borrowing target had to be revised upward from its original Tk104,000 crore baseline to Tk118,000 crore to counter fiscal revenue deficits.
Analysts fear that if the revenue targets for FY27 miss their goals, the government’s reliance on bank debt will spike well past the projected Tk112,000 crore mark.
Furthermore, while the budget lines up Tk116,000 crore in net foreign loans, past project cycles show that bureaucratic red tape, slow project execution, and stringent compliance conditions imposed by multilateral lenders often delay foreign fund disbursements.
Any resulting shortfall in external aid historically shifts the burden straight back onto domestic commercial banks.
The implementation of the 9th pay scale will channel substantial liquidity directly to public sector employees, likely driving up consumer demand and household consumption.
While Finance Division officials believe this demand shift will stimulate domestic economic activity, economists warn that boosting consumption without a corresponding increase in production or supply lines risks fueling inflation.
Given that the central bank has spent months enforcing tight monetary controls to cool the economy, this sudden liquidity injection could complicate efforts to achieve price stability.
