Govt bid to cut bank borrowing will boost credit flow to private sector

The government’s recent policy announcement to reduce excessive borrowing from banks and lessen dependence on loans for budget financing is undoubtedly a bold, timely, and far-sighted step. For a long time, the growing burden of domestic government borrowing had become one of the major structural challenges in Bangladesh’s macroeconomy. A large portion of banks’ surplus savings and liquidity was being diverted into unproductive government borrowing, thereby constricting credit flow to the private sector. Liquidity shortages were pushing interest rates upward and threatening the stability of the overall financial sector. Against this backdrop, while welcoming the government’s decision to break out of the debt cycle, a neutral and extensive discussion on its deeper economic significance, possible implementation challenges, and long-term outcomes is highly necessary.

In Bangladesh’s economic history, the tendency to borrow from domestic sources-particularly the banking system-to meet budget deficits is not a new phenomenon. Every year, the government has to borrow thousands of crores of taka to implement the Annual Development Programme (ADP), provide subsidies to the energy and power sectors, fill revenue gaps, and cover losses of state-owned enterprises. However, the problem becomes acute when the trajectory of this borrowing goes beyond the economy’s normal carrying capacity.

According to the latest data, the total outstanding government borrowing from Bangladesh Bank and scheduled banks in the country stands at approximately Tk. 656,956 crore. Of this, around Tk. 130,616 crore has been borrowed from the central bank, while approximately Tk. 526,340 crore has been borrowed from commercial banks. To finance the budget deficit for FY 2026-27, the government has set a target of taking an additional Tk. 112,000 crore in loans from the banking system. The accumulated debt burden has not only increased but the annual interest payment obligation against this debt is now consuming a substantial portion of the national budget. As a result, it is becoming difficult to increase allocations at the desired level for highly important and welfare-oriented sectors such as education, healthcare, human resource development, and social safety nets.

The total outstanding government borrowing from Bangladesh Bank and scheduled banks in the country stands at approximately Tk. 656,956 crore. Of this, around Tk. 130,616 crore has been borrowed from the central bank, while approximately Tk. 526,340 crore has been borrowed from commercial banks

In this reality, the government’s current position of tightening the reins on borrowing deserves appreciation. This decision could mark a qualitative transformation in fiscal discipline in the future. However, escaping this pattern through declarations or goodwill alone will not be easy, as it requires fundamental reforms in revenue policy and public expenditure management.

For a long time, due to the lack of political will, alternatives to bank borrowing for meeting government financing needs were not explored. Since the government has now adopted alternative measures, implementation may be somewhat uneven but not impossible. Ignoring pressure from influential tax defaulters and vested interest groups to expand the tax net will be a major test. On the other hand, although expenditure reduction is being discussed, it will be difficult to eliminate overnight the entrenched inefficiency, governance deficits, and culture of cost and time overruns in development projects. Added to this are global geopolitical instability, fluctuations in international energy and commodity prices, and supply chain disruptions, all of which can overturn government financial calculations at any time.

To address these challenges, the government must move away from temporary patchwork policies and adopt a coordinated long-term strategy. In selecting development projects, economic viability must take precedence over politically motivated project selection. In addition, productive coordination with ongoing policy reform programs of international financial institutions (such as the IMF and World Bank) may accelerate the country’s domestic reform process.

A review of global economic history shows that no country has achieved long-term and sustainable development solely through debt dependence or borrowed money. Asian countries such as Singapore, South Korea, and Malaysia reached economic transformation and success through mobilization of domestic resources, development of skilled human capital, and empowering the private sector as the driving force. Bangladesh, standing at its current development crossroads, has no alternative but to follow this path.

This new government initiative should not be viewed merely as a temporary financial reform; rather, it should be seen as the beginning of a modern and self-reliant economic philosophy-where the state acts not only as a borrower and spender but as a facilitator creating a fair and competitive environment for the private sector. If this political commitment remains intact and institutional reforms are carried out with integrity, then this decision could become one of the principal foundations for Bangladesh’s transition from a middle-income country to a developed, stable, and self-reliant economy.