Government borrowing from commercial banks has risen by 74% in the current financial year, driven largely by sluggish private sector credit growth and a strategic move to reduce its debt to the central bank under a contractionary monetary policy.
According to data from Bangladesh Bank, the government secured Tk78,832 crore from commercial banks through the issuance of Treasury bills and bonds between July and 20 February, compared to Tk45,231 crore in the same period the previous year.
Currently, the government’s total outstanding borrowing from commercial banks amounts to Tk3.97 lakh crore.
However, during the first eight months of FY25, the government repaid Tk62,000 crore of its central bank borrowings, primarily using funds obtained from commercial banks.
As a result, its outstanding debt to the central bank has decreased by around 40%, dropping from Tk1.56 lakh crore in June 2024 to Tk94,042 crore.
With limited demand for private sector loans, Treasury bills and bonds have become an appealing investment option for banks. Banks prefer these instruments due to government guarantees, which mitigate risk. Often, the government raises several times the amount of Treasury bills and bonds than banks initially bid for, leading to a gradual decline in interest rates, which currently exceed 12%.
As per Bangladesh Bank data, private sector credit growth declined to 7.28% in December 2024, a 38-basis-point decrease from November. In November, growth had already fallen to 7.55%, the lowest level since May 2021, continuing a steady drop from 10.13% in July. This remains well below the central bank’s target of 9.8% for the first half of FY25.
Further data from the central bank shows that the government’s net borrowing from the banking sector rose by Tk16,832 crore as of 20 February in the current financial year, compared to Tk12,555 crore during the same period last year—marking a 34% increase year-on-year.
Under the revised budget for the current financial year, the government plans to borrow Tk1,17,000 crore from domestic sources, including Tk99,000 crore from the banking sector and Tk18,000 crore from the non-banking sector. To date, the government has utilised 17% of its banking sector borrowing target within roughly eight months.
As of 20 February, the government’s net borrowing from the banking sector stood at Tk4.91 lakh crore, up from Tk4.74 lakh crore at the end of June 2024.
Bangladesh Bank is focused on controlling inflation by tightening the money supply. To achieve this, it is implementing measures such as reducing government debt and raising policy and lending rates.
