Like every year, the government is relying more on bank loans to meet the budget deficit. Rather, as the huge budget deficit is created, the dependence on the banking sector is increasing. Economists believe that this may hinder initiatives to boost the private sector.
Finance Minister Amir Khosru Mahmud Chowdhury will present the Tk 9.38 trillion budget for the 2026-27 fiscal year in the National Parliament on Thursday. This is the first budget of the current government led by Prime Minister Tarique Rahman. It is reported that a plan to borrow Tk 1.12 trillion from the banking sector will be announced in it.
The new government has announced a fund of Tk 60,000 crore to boost the private sector, a large part of which is expected to come from banks’ own financing. Sector stakeholders say there is no alternative to increasing bank lending to boost private investment and employment. In such a situation, if the government borrows large sums from the banking sector, the availability of credit to the private sector may decrease.
Fiscal deficit and debt dependence
The government had targeted to borrow a net Tk 1 lakh 4 thousand crore from banks to meet the budget deficit for the 2025-26 fiscal year. According to Bangladesh Bank data, the government borrowed a net Tk 1 lakh 9 thousand 558 crore from the banking sector before the end of the fiscal year, that is, from July to May 10. It is estimated that this amount of loan may exceed Tk 1 lakh 25 thousand crore by the end of the fiscal year.
If the country’s economy does not pick up, the chances of collecting the revenue as per the target are low. In that case, the government will have to rely on more bank loans to meet its expenses. If the government borrows more, the private sector may be deprived of credit and initiatives to boost the sector may also be hampered. Therefore, the government will have to proceed cautiously in this regard.
— Mustafa K. Mujeri, former Chief Economist, Bangladesh Bank.
It is learnt that the proposed budget of Tk 9.38 trillion for the upcoming fiscal year 2026-27 is estimated to have a deficit of Tk 2.43 trillion. To meet this deficit, there is a plan to collect Tk 1.27 trillion from internal sources. Out of this, Tk 1.12 trillion will be taken from the banking system. The remaining Tk 1.5 trillion will be collected from savings certificates and other sources.
Finance Minister Amir Khasru Mahmud Chowdhury is preparing to present the budget with a possible theme of ‘Economic Democratization and Deregulation: Bangladesh on the Journey to a Trillion Dollar Economy’.
One of the reasons for the government’s increasing debt dependency is the lag in revenue collection. According to the National Board of Revenue (NBR), the revenue deficit stood at Tk 1,453.3 crore in the first 10 months of the current fiscal year (till April) compared to the revised target. During this period, Tk 3,269.28 crore was collected against the target of Tk 4,314.61 crore.
Former Director General of Bangladesh Institute of Development Studies (BIDS), Mustafa K. Mujeri, told Prothom Alo that if the country’s economy does not recover, the chances of collecting revenue as per the target are low. In that case, the government will have to rely on more bank loans to meet its expenses. If the government borrows more, the private sector may be deprived of credit and initiatives to boost the sector may also be hampered. Therefore, the government will have to proceed cautiously in this regard.
Bank lending slump
According to Bangladesh Bank data, the growth of bank credit in the country’s private sector has slowed to 4.75 percent, the lowest since 2003. This growth rate reflects the slow pace of investment in the economy.
New loan disbursements in banks have almost come to a standstill. According to a report by Bangladesh Bank, the total loan disbursements of the country’s 61 scheduled banks stood at Tk 18,24,668 crore at the end of March. New loans increased by only Tk 4,000 crore in the three months from January to March.
According to bankers, if we assume 10 percent interest, at least 40 thousand crore taka of interest should be added in three months. But as loan collections increase, banks are reducing the loan balance. As a result, despite the impact of interest, the total loan balance has increased by only 4 thousand crore taka in three months.
According to the Finance Ministry, the total revenue target in the proposed budget has been set at 6 lakh 95 thousand crore taka. And the overall budget deficit will be 2 lakh 43 thousand crore taka. To meet this deficit, there is a plan to collect 1 lakh 27 thousand crore taka from internal sources, of which the bulk, i.e. 1 lakh 12 thousand crore taka, will come from the banking sector. The remaining 15 thousand crore taka will be collected from savings certificates and other sources.
