Government repays Tk3,439 crore more than it borrows
Key Highlights:
Government repaid Tk3,439 crore more than it borrowed between July and October.
Reduced development spending and lower interest rates on government securities led to decreased borrowing demand from banks.
Borrowing from non-bank sources rose to Tk12,501 crore.
Only 5% of the annual development budget was spent in the first quarter.
Private sector credit growth fell to 6.29%, the lowest in four years.
Economists warn that the slowdown indicates broader economic stagnation and weak investment.
Between July and October of the 2025-26 fiscal year, the Bangladesh government repaid more money to the central and scheduled banks than it borrowed, resulting in a net repayment of Tk3,439 crore.
According to bankers and economists, the decline in government development spending and the reduction in interest rates on treasury bills and bonds are key factors that have diminished banks’ demand for government debt.
The government repaid Tk900 crore to the central bank and Tk2,540 crore to scheduled banks. However, borrowing from non-bank sources surged to Tk12,501 crore, coming from non-bank financial institutions, insurance companies, and private investors.
For the fiscal year, the government’s borrowing target from the banking sector was set at Tk1.04 lakh crore, but the net borrowing in the first four months was just Tk9,062 crore, or 8.71% of the annual target. Data from Bangladesh Bank shows that total government debt in the banking sector stood at Tk6.33 lakh crore as of 30 October, down from Tk7.57 lakh crore in June.
Factors Behind Reduced Borrowing from Banks
Bankers suggest that the lack of significant mega-projects under the current interim government has led to a reduced demand for borrowing. A contraction in imports has also led to lower credit demand across both the public and private sectors. A senior official at Bangladesh Bank told The Business Standard, “Once a new government takes office and major infrastructure projects are launched, government borrowing is expected to rise.”
The Implementation Monitoring and Evaluation Division (IMED) has set the development budget for this fiscal year at Tk2.38 lakh crore. However, in the first three months, only Tk12,158 crore was spent, which is just 5% of the annual target.
A banker remarked, “With reduced imports, private sector credit demand has fallen. When the government does not ramp up spending on development projects, businesses import less, reducing the demand for commercial loans.”
Non-Bank Borrowing Sees a Surge
Traditionally, the government borrows heavily from the banking sector to finance the budget deficit, with significant portions coming from scheduled banks and the central bank. However, the government has increasingly turned to non-bank sources for financing. A Bangladesh Bank official explained that the shift towards non-bank borrowing has been driven by lower government demand for loans from banks and an increase in borrowing from non-bank institutions.
“Several insurance companies and corporate investors have significantly increased their investments,” the official said. “For example, companies like Grameenphone and bKash, along with provident funds from organisations such as BCB, have been actively investing in treasury bills and bonds. Non-bank institutions often submit lower bids than banks in government bond auctions, making it a more cost-effective option for the government.”
Last fiscal year, banks earned substantial profits from investing in government securities that offered interest rates above 12%. However, the current rates have fallen closer to 10%, reducing the attractiveness of these securities to scheduled banks. Meanwhile, demand for credit in the private sector has remained weak.
Private Sector Credit Growth Falls to Four-Year Low
Private sector credit growth in Bangladesh hit a four-year low in September, falling to just 6.29%, according to data from Bangladesh Bank. This marks a continued decline from August 2024, when growth was recorded at 6.35%. Prior months have seen similar downturns, with growth rates of 6.52% in July, 6.40% in June, 7.17% in May, and 7.5% in April.
M Masrur Reaz, chairman and CEO of Policy Exchange of Bangladesh, stated that the sluggish credit growth is unsurprising given the current economic climate: “Investment is weak, domestic consumption remains low due to high inflation and slow job growth, and trade credit demand is low as imports have not fully normalised. This points to a broader economic stagnation, especially affecting manufacturing and services, which could have a negative impact on employment in smaller businesses.”
Mati ul Hasan, managing director of Mercantile Bank PLC, noted that while exports and remittances remain strong, the import of capital machinery—particularly for the ready-made garment and spinning sectors—has decreased. “With reduced loan demand, banks with surplus liquidity are turning more towards treasury bills and bonds, which reduces their interest income. Both excess liquidity and a liquidity crunch can be detrimental to the sector,” Hasan added.
As the fiscal year progresses, economists and financial analysts will continue to monitor these trends closely to assess their long-term implications for Bangladesh’s economy.