The government鈥檚 borrowing from commercial banks doubled in the first eight months of the 2024-25 financial year due to high interest rates and the low-risk nature of treasury instruments.
According to Bangladesh Bank data, borrowing reached Tk 86,000 crore in the July-February period, significantly higher than Tk 44,137 crore in the same period of FY24.
During this time, the government repaid Tk 59,780 crore to the Bangladesh Bank, reducing reliance on direct central bank financing.
Consequently, net borrowing stood at Tk 26,225 crore in the reporting period compared with that of Tk 12,298 crore a year earlier.
Bankers said that the surge in government borrowing stemmed from the attractiveness of treasury instruments.
Treasury bill rates have exceeded 10 per cent, while bond yields neared 12 per cent, making them lucrative investments.
The government鈥檚 increased dependence on commercial banks was a direct result of the Bangladesh Bank鈥檚 policy shift, as it sought to curb inflationary pressures by avoiding direct money printing.
Some banks, restricted from lending to businesses due to financial instability, redirected their funds into government securities.
The central bank had barred several institutions from issuing fresh loans after uncovering extensive irregularities, which left them struggling to repay depositors.
In response, the Bangladesh Bank restructured the boards of 14 troubled banks in an effort to restore stability.
Additionally, many banks faced a lack of viable investment opportunities given the country鈥檚 current economic uncertainty.
This, coupled with excess liquidity in the banking system, made treasury instruments a convenient and safe option.
Excess liquidity rose by 19.67 per cent to Tk 2.34 lakh crore in January, up from June 2024, as banks accumulated idle funds.
Despite this liquidity, banks鈥� overall lending capacity weakened due to high levels of non-performing loans, increasing deposit withdrawals and rising cash circulation outside banks amid persistently high inflation.
Private sector credit growth fell to 7.15 per cent in January, the lowest in a decade, indicating declining confidence in the economy.
Inflation has remained above 9 per cent since March 2023, standing at 9.32 per cent in February after 9.94 per cent in January.
This prolonged inflationary pressure has severely impacted fixed-income households, forcing many to withdraw savings to cover rising living costs.
With limited lending opportunities and attractive treasury yields, banks continued investing heavily in government securities.
While this has helped meet the government鈥檚 borrowing needs, it has also restricted credit flow to businesses.
For FY25, the government set a net borrowing target of Tk 1.37 lakh crore to cover budget deficits, up from Tk 94,281 crore in FY24 and Tk 1.18 lakh crore in FY23.
The steady rise in borrowing reflects increasing expenditures and revenue shortfalls, further complicating the country鈥檚 economic challenges.
