Private Sector Strained by Government’s Excessive Bank Borrowing

The private sector is facing significant constraints due to the government’s heavy reliance on banks to cover revenue shortfalls. As a result, there is very little room left for productive private investment.

This situation has been highlighted in a report by the General Economics Division (GED) published on Tuesday. According to the report, in August of this year, private sector credit growth fell to just 6.35%, while net government sector borrowing increased by 16.59%.

The report suggests that high interest rates, strict lending policies, and political-economic uncertainty are discouraging businesses from investing and expanding. At the same time, the government has been compelled to borrow more to cover the revenue deficit.

The October edition of GED’s Economic Update and Outlook noted that the August–October period reflects the inherent trade-offs or balancing acts in Bangladesh Bank’s policies. The central bank’s tight monetary policy has helped gradually control inflation, but it has also constrained economic growth to some extent.

The report also indicates that although inflation remains high, recent months show signs of stabilization. It fell from 9.05% in May to 8.48% in June, and slightly rose to 8.36% by the end of September.

However, reduced lending to the private sector directly lowers investment and employment creation. The report emphasizes that the historically low level of private credit growth signals a major challenge for future economic activity. At the same time, the government’s continued high dependence on bank borrowing complicates the situation further.

GED stresses that for sustainable and robust economic recovery, it is essential to encourage private investment, maintain a balance in inflation control, and foster a business-friendly environment.

The report also notes that while deposit growth in the early months of the current fiscal year has been somewhat slow, the overall trend remains positive. The slow growth is largely due to high inflation, which reduces real income and limits households’ capacity to save. However, remittances from abroad and government measures have slightly boosted deposits.

Finally, GED points to a cautiously optimistic outlook for the coming months. With the approach of the election, temporary economic activity is expected to increase, which could enhance business and investor confidence.