Bangladesh budget trims bank borrowing target to Tk 1.04tn for FY2026

The interim government has proposed borrowing Tk 1.04 trillion from the banking system in the 2025-26 fiscal year, 24.37 percent less than the Tk 1.37 trillion target set for the previous year.

In his Tk 7.9 trillion budget presentation on Monday, Finance Advisor Salehuddin Ahmed also announced a reduced target of Tk 125 billion from savings certificates, down 18.83 percent from Tk 154 billion in the last fiscal.

He said the overall budget deficit would stand at Tk 2.26 trillion, or 3.6 percent of GDP, and reiterated that the deficit and borrowing levels would remain "tolerable".

Of the total shortfall, the government aims to raise Tk 1.25 trillion from domestic sources and Tk 1.1 trillion from external lenders.

Interest payments in the coming fiscal year are projected at Tk 1.22 trillion.

To meet domestic financing needs, the government typically borrows from banks via treasury bills and bonds, alongside issuing savings certificates.

With treasury yields rising since mid-2023, currently between 12 percent and 13 percent, banks have increasingly favoured investment in government securities.

However, economists have raised concerns that increased government borrowing from the banking sector may crowd out private investment, restricting access to credit for businesses and stifling economic activity.

According to Bangladesh Bank data, private sector credit growth has remained below 8 percent for five consecutive months.

Following the mass uprising in July 2024, loan growth began to slow and remains unstable.

The loan growth rose a little to 7.57 percent in March, which stood at 6.82 percent in February.

In January, the loan growth in this sector was 7.15 percent.

Data from Bangladesh Bank shows that the growth was 10.13 percent in July, the month the mass uprising began. However, it dipped to 9.86 percent in August.

In September, it dropped to 9.20 percent, which was the lowest in three years.