Govt dependency on banks rising in FY25

The government again plans a heavy reliance on borrowing from the banking sector in FY25 to cover the budget deficit. This target is Tk1,37,500 crore, which is 2.5 per cent of the GDP.

Such borrowing was Tk 1,32,395 crore in FY24. However, at the end of this FY, the amount will rise to Tk 1,55,935 crore, which is mentioned in the revised budget of FY24.

For FY25, the proposed total budget deficit is Tk 2,56,000 crore, which is 4.6 per cent of the GDP. To finance this deficit, the government plans to borrow Tk 95,100 crore, including grants, from foreign sources, while Tk 1,60,900 crore will be borrowed from domestic sources.

Among the domestic sources, the government heavily depends on the banking sector with Tk 1,37,500 crore, which is an increase of 3.85 per cent compared to FY24. However, it is 11.82 per cent lower than the FY24 revised budget.

Insiders believe that the government’s dependency on bank borrowing will increase again in next FY, which is not good for the economy. When the government takes more loans from banks, it directly impacts the private sector.

The government has already increased borrowing from the banking sector from the private banks. As a result, the private sector credit growth stood at 9.90 per cent at the end of April, FY24.

Eminent economist AB Mirza Azizul Islam said, “The government has been suffering from a revenue deficit for years. This deficit increased steadily. As a result, the government borrowed from banks to meet the revenue deficit in the budget.

“The revenue problem cannot be fixed overnight, so we need a proper plan. If the government continues to borrow from scheduled banks, the private sector credit will be in trouble.”

Last year, the government had stopped borrowing from the central bank after economists criticised the move as fresh money boosting the already high inflation. As a result, the government turned to scheduled private banks instead of relying on the central bank.

Several managing directors of private banks had told The Business Post that profits are a key consideration of private banks. So banks are investing their liquidity in treasury bills and bonds for high interest rates.

According to the central bank data, the government borrowed money from the private banks at Tk 78,117 crore from July 1 to May 29 of FY24, compared to Tk 17,883 crore posted in FY23.

On the other hand, the government repaid Tk 16,797 crore to the central bank from July 1 to May 29 of FY24. At the same time, the government borrowed Tk 73,000 crore from the central bank.

During this period, net borrowing stood at Tk 61,319 crore in FY24, which was at Tk 91,023 crore in FY23.