Govt's domestic borrowing drops 48% in first 5 months of FY26

Highlights:

• Government domestic borrowing fell 48% amid lower spending
• Most borrowing came from non-bank sources like insurers and NBFIs
• Banks' lower appetite tied to falling T-bill and bond rates
• ADP spending sluggish, only 8.33% used in five months
• Private-sector credit growth hit four-year low from weak investment
• Political uncertainty and energy shortages further dampen loan demand

In the first five months (30 June and 24 November) of FY2025–26, the government's net borrowing from domestic banking and non-banking sources fell sharply to Tk11,700 crore, a 48% drop from Tk22,251 crore in the same period last year.

Bankers and economists attribute the decline to a number of factors – lower development spending, political uncertainty, and falling interest rates on treasury bills and bonds, which have reduced banks' investment appetite.

Notably, the majority of this borrowing has come from non-banking sources, amounting to Tk10,315 crore, according to Bangladesh Bank data. Non-banking sources include non-bank financial institutions (NBFIs), insurance companies, and individual investors.

Borrowing from the central bank during these five months was Tk1,993 crore, though the government had repaid Tk900 crore a month earlier without taking any net loan.

The government's target for domestic borrowing this fiscal year is Tk1.04 lakh crore, but only 11.25% of that target has been met so far. 

As of 24 November, total government domestic borrowing reached Tk5.62 lakh crore, up from Tk5.50 lakh crore at the end of June.

A senior Bangladesh Bank official told TBS, "After the February election, when a new government initiates mega projects, the government's borrowing will rise."

Data from the Implementation Monitoring and Evaluation Division (IMED) show that the development (ADP) budget for FY26 targets Tk2.38 lakh crore in expenditure. However, in the first five months, only Tk19,578 crore was spent, accounting for 8.33% of the annual target.

A banker explained, "With lower imports, private-sector loan demand has also dropped. When the government does not increase development spending, businesses import less, which reduces demand for commercial loans."

Why govt borrowing more from non-bank sources

The government usually borrows heavily from the banking sector to cover the general budget deficit. A significant portion comes from scheduled banks, and some from the central bank as well.

A Bangladesh Bank official said one key reason the government is borrowing less from scheduled banks and the central bank is that its overall loan demand is lower, prompting it to borrow more from non-banking sources and repay a larger share to banks.

He explained that during these five months, several insurance companies and corporate investors have increased their investments. Among corporate institutions, companies like Grameenphone and bKash have heavily invested in T-bills and bonds. In addition, provident fund money from several institutions, including BCB, has been invested in these instruments.

"We now conduct auctions for borrowing – non-bank institutions submit bids at lower rates than scheduled banks, which is why borrowing from banks is lower. Last year, banks earned a large portion of their profit through investments in government treasury bills and bonds," he said.

Last fiscal year, treasury bill and bond rates were over 12%. Now, rates have dropped to a little above 10%, leading to reduced borrowing from scheduled banks. Loan demand in the private sector is also slow.

Private sector credit growth hits four-year low

Private sector credit growth in Bangladesh has continued its downward trend, falling to its lowest point in four years in October, according to Bangladesh Bank data.

Central bank figures show that private sector credit growth stood at 6.23% at the end of October this year, slightly down from 6.29% in September. A year earlier, in October 2024, growth was recorded at 8.30%.

Economists and bankers describe the persistent slump as a cause for concern, saying that the decline is mainly due to the fall in new investment since August last year.

Zahid Hussain, former lead economist at the World Bank's Dhaka office, said, "The main reason for falling private credit growth is weak new investment. When there is no new investment, imports of capital machinery fall and loan demand drops. There is no sign of a turnaround in investment, and that is the biggest factor behind the slowdown."

He added that the earlier practice of borrowing for fraudulent purposes has declined, while dollar shortages that previously limited import payments have eased.

"But one major problem now is the energy crisis. Many factories are struggling to operate because of gas shortages," he said.

Md Touhidul Alam Khan, managing director and CEO of NRBC Bank, said, "The slowdown in private sector credit can be attributed to a simultaneous decline in both credit demand and supply. On the demand side, political uncertainty has led to cautiousness among investors, resulting in delays in new investment decisions."