Staff Correspondent:

Though most banks in the country are already facing a liquidity crisis, the government, grappling with a revenue shortfall, has increasingly leaned on bank borrowing to meet its budgetary needs, surpassing its annual borrowing target well before the fiscal year ends.

With a few days remaining in FY25, the government has already borrowed Tk99,591 crore from the banking sector as of 15 June, exceeding its annual target of Tk99,000 crore, according to Bangladesh Bank data.

The central bank’s data shows that the government borrowed Tk1.22 lakh crore from scheduled banks this fiscal year while repaying Tk22,769 crore to the central bank. As a result, the net borrowing from the banking system stands at Tk99,591 crore.

Bankers attribute the rise in government borrowing to a combination of falling revenue collection and reduced private investment. They said after the fall of the Awami League government earlier in the fiscal year, the country experienced a significant deterioration in law and order.

During this period, businesses refrained from making new investments, leading banks to channel more funds into government treasury bills and bonds, they added.

As per the data on the central bank’s website, this is the second time the government’s bank borrowing has exceeded the annual target within a single fiscal year. The last time was in FY23, when the borrowing target was Tk1.15 lakh crore, but the government ended up borrowing Tk1.19 lakh crore.

Although the government imposed additional duties and taxes midway through the year on various goods and services, the efforts yielded limited gains in actual collections.

In contrast, during some earlier fiscal years, the government repaid more than it borrowed from banks and relied more on non-banking sources such as savings instruments.

Economists note that the government is now forced to borrow more from the banking sector to cover its budget deficit, as it has limited options beyond banks and external sources. Revenue collection continues to fall short of targets, leaving a gap that must be filled through borrowing.

According to the National Board of Revenue (NBR), it fell short of its target by Tk66,678 crore in the first 11 months of FY25. As of May, the revenue collection stood at Tk3.27 lakh crore against the target of Tk3.94 lakh crore.

Economists concerned about increasing reliance on banking sector

Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD) “The government is not receiving enough revenue to meet its budgetary needs, which is why it is borrowing more from banks.”

“Our tax-to-GDP ratio is very low, and we have no option but to improve it. If the government fails to achieve its revenue target, it could crowd out the private sector by limiting access to credit. There is already a liquidity crisis in the banking sector,” she said.

She suggested strengthening tax administration, expanding the tax net, and increasing the use of automation and technology to boost collections.

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, warned that excessive government borrowing from banks sends a negative signal to the economy.

“When the government borrows heavily, banks’ liquidity declines, reducing the scope for private sector lending,” he said.

“This hampers private investment and job creation. Although current demand for private sector credit is low, if banks are unable to lend in the future, crowding-out will occur. Interest rates will rise, and so will inflation,” he added.

“Many banks are already suffering from liquidity shortages, and non-performing loans have reached nearly 25% of total outstanding loans,” Mahbubur said. “If the government increases borrowing in the next fiscal year, it will further impact the private sector. This is not a sustainable solution.”