Government Debt from Banks Tops One Trillion in Nine Months

Government borrowing from the banking system has surged past its annual target within just nine months, reflecting mounting pressure on public finances amid weak revenue performance and rising expenditure needs. The growing reliance on domestic bank credit highlights the widening gap between income and spending in the current fiscal year.

Official figures show that the government had set a borrowing target of 1.04 trillion taka from banks for the entire fiscal year. However, by the end of March, covering the July–March period, total borrowing had already reached 1.089 trillion taka, exceeding the planned ceiling ahead of schedule.

Government Bank Borrowing (July–March)

The sharp increase has been driven primarily by routine expenditure pressures, including salaries of public employees, debt servicing, and subsidy payments. As revenue collection weakened, the government increasingly turned to domestic banking channels to bridge the fiscal gap.

At one point in March, borrowing demand exceeded monthly limits, forcing the government to access additional funds from the central bank. This led to short-term monetary expansion commonly described as money creation. While the excess borrowing was later repaid within a short period, reducing immediate risk, economists caution that repeated reliance on such measures can destabilise price levels.

Central bank financing increases reserve money, which can expand liquidity in the economy and contribute to inflationary pressure. Meanwhile, heavy borrowing from commercial banks may reduce the availability of credit for private businesses, potentially slowing investment, production, and employment growth.

The overall fiscal environment remains under strain. The national budget is estimated at around 8 trillion taka, with approximately 5 trillion taka expected from tax revenues. However, actual revenue performance has fallen significantly short of expectations. In the first nine months of the fiscal year, the revenue shortfall reached nearly 1 trillion taka, the highest on record.

Weak business activity and sluggish economic momentum have further constrained tax collection, limiting the government’s ability to close the fiscal gap through ordinary revenue channels.

Under the revised budget plan, tax authorities must collect approximately 2.15 trillion taka during the final quarter from April to June. This requires an average monthly collection exceeding 717 billion taka, a highly challenging target under current conditions.

Borrowing Movement in April

There has been some easing of borrowing pressure in April, with partial repayments reducing outstanding liabilities:

The decline indicates efforts to stabilise liquidity conditions and reduce pressure on the banking system.

Economic Risks and Structural Concerns

Persistent reliance on bank borrowing carries significant macroeconomic risks. Rising public debt increases interest obligations, which already constitute a large share of government expenditure. This reduces fiscal space for essential sectors such as healthcare, education, infrastructure development, and social safety programmes.

Policy analysts suggest several corrective measures to reduce borrowing dependence. These include expanding the tax base, improving compliance through digital systems, reducing unnecessary expenditure, prioritising high-impact development projects, and diversifying financing through bonds and concessional external loans. Strengthening public enterprise efficiency and reducing subsidy burdens are also seen as necessary reforms.

Without structural adjustments, continued dependence on bank borrowing could heighten inflationary risks, constrain private sector credit, and weaken long-term economic stability.