The government鈥檚 borrowing from commercial banks more than doubled in the first six months of the financial year 2024-25, driven by the attractive returns and low-risk nature of treasury instruments for banks.
According to Bangladesh Bank data, the government鈥檚 borrowing from banks was Tk 69,056 crore in the July-December period, significantly up from Tk 29,377 crore in the same period in FY24.
During this period, it repaid Tk 54,413 crore to the Bangladesh Bank, effectively reducing reliance on direct central bank financing, a move intended to mitigate inflationary pressures stemming from money supply expansion.
Therefore, the net government borrowing was Tk 14,642 crore in July-December while it was negative Tk 3,286 crore in the same period of the previous fiscal year.
Bankers said that higher returns and low risk made treasury instruments appealing to banks, which, in turn, supported increased government borrowing.
The rate of treasury bills has currently neared 12 per cent and that of bonds neared 13 per cent.
In this borrowing mix, the government relied heavily on commercial banks more than the central bank.
This trend reflected the Bangladesh Bank鈥檚 decision to curtail direct lending to the government, forcing the government to rely on commercial bank sources amid high borrowing needs.
Bankers said that some banks were barred from lending to businesses, forcing them to invest in government treasury bills.
The central bank barred some banks from lending after finding massive loan irregularities and malpractices by them which resulted in failure of repaying depositors鈥� money, devastating overall banking sector. The BB restructured board of 11 banks to rescue them from severe crisis.
However, the high borrowing from the commercial banks may also be concerning as the banks were struggling with severe liquidity shortage.
The lending capacity of the country鈥檚 banks diminished due to high non-performing loans, deposit withdrawals and rising cash outside banks amid high inflation, bankers said.
Private sector credit growth in Bangladesh dropped in November to 7.5 per cent, the lowest in 41 months, reflecting deepening challenges in the banking sector and the broader economy.
Bangladesh鈥檚 annual inflation rate hit 10.89 per cent in December, which was 11.38 per cent in November 2024 and 10.87 per cent in October.
It has remained above 9 per cent since March 2023 affecting particularly fixed-income households.
Fixed-income and low-income households have been struggling with rising commodity prices, leading to more withdrawals than deposits.
In this tight liquidity context, higher interest rates on treasury bills and bonds have encouraged banks to invest in these low-risk instruments, effectively meeting government borrowing needs but potentially constraining credit flow to the private sector.
For FY25, the government has set a net borrowing target of Tk 1.37 lakh crore, aiming to offset budget deficits.
The government borrowed Tk 94,281 crore in FY24 and Tk 1.18 lakh crore in FY23, showing a steady increase over the years, largely due to rising expenditures and lower-than-expected revenue collection.