Govt to cut bank borrowing in FY27 to spur private credit, curb inflation

The government is set to implement a strategic shift in the national budget for fiscal year 2026-27 by significantly reducing its reliance on internal debt, particularly from the banking sector, according to an official working on budget preparation.
This move aims to maintain macroeconomic stability, control persistent inflation, and ensure an uninterrupted flow of credit to the private sector, the official said, wishing anonymity.

According to sources at the Ministry of Finance and Bangladesh Bank, the proposed budget for FY27 is estimated at Tk 9.38 lakh crore. While the projected budget deficit stands at approximately Tk 2.43 lakh crore, the government plans to borrow only Tk 1.19 lakh crore from internal sources.

This represents a Tk 18,000 crore reduction from the current fiscal year's revised internal borrowing target of Tk 1.37 lakh crore.

To bridge the deficit while easing pressure on local banks, the government is pivoting towards long-term and more affordable international loans.

The target for foreign borrowing is projected to reach Tk 1.16 lakh crore in the next fiscal year, nearly doubling the current year's revised target of Tk 63,000 crore.

Officials believe that reduced government borrowing will leave banks with surplus funds to invest in industrialisation and business expansion.

Furthermore, this strategy is expected to mitigate the inflationary pressures previously caused by excessive bank borrowing and the printing of money by the central bank.

To compensate for the reduction in internal debt, the National Board of Revenue (NBR) is undertaking massive reforms to achieve a revenue collection target of Tk 6.95 lakh crore.

Key measures include expanding the tax net and withdrawing various VAT exemptions, increasing tax rates on online gaming and luxury goods, and enhancing transparency and liquidity within the banking sector.

Economists have welcomed the move on paper but cautioned that its success depends heavily on the pace of foreign aid disbursement and the government's ability to meet its ambitious revenue targets.

Former NBR Chairman Dr Muhammad Abdul Majid warned that if the NBR fails to collect the desired revenue, the government might be forced to return to heavy bank borrowing by the end of the year, risking further financial instability.

While talking to UNB, he emphasised the need for strict monitoring and financial discipline from the beginning of the fiscal year.    �"UNB