The government has continued to rely on borrowing to meet its day-to-day expenditures. As revenue collection has fallen short of expectations, it has had little alternative but to take on debt.
To finance the budget deficit, the Ministry of Finance has nearly met its planned borrowing from the banking system for the entire 12-month fiscal year within just nine months.
During this period, government borrowing from banks exceeded Tk 1 trillion (100,000 crore).
The government even surpassed its monthly borrowing limits and, facing a shortage of funds, resorted to printing money to secure additional loans in order to pay public sector salaries and allowances, interest obligations, subsidies, and other expenditures.
However, this measure remained temporary. Nevertheless, the government’s debt burden has continued to rise, placing additional pressure on overall budget management.
According to the budget target, the government planned to borrow Tk 1.04 trillion from the banking system in the current fiscal year.
However, by the end of March, it had already borrowed Tk 1.08985 trillion within the first nine months (July–March) to manage expenditure pressures.
Of this amount, Tk 780.49 billion came from commercial banks, while Tk 309.36 billion came from Bangladesh Bank.
After partial repayments, the outstanding amount has now declined to approximately Tk 940 billion.
Towards the end of March, the government required additional funds and sought support from Bangladesh Bank.
By then, it had already exceeded the borrowing limits of Tk 240 billion under the Ways and Means and overdraft facilities, each capped at Tk 120 billion.
The country’s business environment remains weak, leaving no alternative but to borrow. The problem arises when the central bank prints money to provide loans, as this generates inflation. On the other hand, excessive borrowing from commercial banks restricts access to credit for entrepreneurs, affecting employment.Mustafa K Mujeri, former Chief Economist of Bangladesh Bank
To extend further credit, Bangladesh Bank had to resort to the process commonly referred to as ‘printing money’.
By creating additional funds, the central bank provided liquidity, which is known as reserve money or high-powered money.
When one unit of such money is created, it can multiply several times within the broader money supply, potentially increasing inflation.
However, the Ministry of Finance repaid this borrowing within two weeks, limiting its impact on the market.
Implications of excessive borrowing
Excessive government borrowing can create multiple forms of economic pressure.
If loans are financed through money creation, inflation may rise. When purchasing power does not increase accordingly, people are forced to pay higher prices for goods and services, raising the cost of living.
Moreover, when the government borrows heavily from the banking system, it reduces the availability of credit for private sector entrepreneurs.
This can hinder the establishment of new industries, discourage business expansion, and ultimately reduce employment opportunities, particularly for young people.
At the same time, the government itself faces mounting pressure. Increased borrowing raises overall liabilities, leading to higher repayment obligations, including both principal and instalments.
Interest payments have also grown significantly. In recent years, servicing domestic and foreign debt has become one of the largest components of the national budget.
As a result, the government struggles to allocate sufficient resources to critical sectors such as education, healthcare, development projects, and social safety net programmes.
Criticising the government’s borrowing, former Chief Economist of Bangladesh Bank, Mustafa K Mujeri, told Prothom Alo, “The country’s business environment remains weak, leaving no alternative but to borrow. The problem arises when the central bank prints money to provide loans, as this generates inflation. On the other hand, excessive borrowing from commercial banks restricts access to credit for entrepreneurs, affecting employment.”
According to Mustafa K Mujeri, the government should now focus on revitalising business activities to increase tax revenue.
At the same time, it needs to take additional initiatives to boost investment in order to generate employment.
Why did the government have to borrow more?
This year, the government is implementing a budget of approximately Tk 8 trillion. Of this, about Tk 5 trillion is expected to be financed by the National Board of Revenue (NBR).
In addition, the government raises funds from both tax and non-tax sources.
To finance the remaining budget deficit, it relies on borrowing from the banking sector, the sale of savings certificates, and both domestic and external sources.
However, due to the ongoing slowdown in business and trade, government revenue collection has fallen to its lowest level this year.
In the first nine months of the current fiscal year, the shortfall in tax revenue has reached about Tk 1 trillion, the highest on record.
The overall business climate in the country also remains weak, making it difficult to expect a significant increase in revenue.
According to the revised budget, the NBR must collect Tk 5.03 trillion in the current fiscal year.
A major challenge for the new government is to generate a substantial amount of tax revenue within the remaining three months.
Between April and June, it must collect Tk 2.15 trillion. This requires an average monthly collection of Tk 717.12 billion to meet the target.
Lower borrowing, higher repayment in April
While the government borrowed heavily from the banking system during the first nine months of the fiscal year, it reduced its borrowing in April, easing some of the pressure.
According to central bank sources, borrowing from the central bank stood at Tk 235.83 billion on 9 April. However, total borrowing from the banking system rose to Tk 1.12761 trillion.
By 21 April, borrowing from the central bank declined significantly to Tk 37.05 billion, while total borrowing from the banking system decreased to Tk 972.81 billion.
The following day, 22 April, borrowing from the central bank dropped further to Tk 2.12 billion, and total borrowing from the banking system fell to Tk 937.84 billion.
How can borrowing be reduced?
Relevant stakeholders suggest several measures to reduce reliance on bank borrowing and overall debt:
The most sustainable way to reduce the budget deficit is to raise revenue. The government must broaden the tax base, prevent tax evasion, and strengthen digital tax administration. Enhancing the capacity of the National Board of Revenue is essential.
The government should cut unnecessary spending, prioritise development projects, reduce low-priority expenditures, and minimise wastage.
The government should seek more cost-effective funding options, such as increasing the use of savings certificates, bonds, and low-interest foreign loans instead of relying heavily on bank borrowing. This would ease pressure on the banking sector.
The government should prioritise reforms in state-owned enterprises, particularly those operating at a loss, to reduce the need for subsidies.
It should also rationalise subsidies so that greater benefits reach lower-income groups rather than wealthier segments.
The government should define an acceptable deficit limit through a medium-term fiscal framework and adhere strictly to it in order to ensure long-term fiscal stability.