The government’s net borrowing from commercial banks fell significantly in the 2024-25 fiscal year, reaching Tk 72,372 crore-just 73% of the Tk 99,000 crore annual target set for borrowing from the banking sector, according to data released by Bangladesh Bank.

In comparison, net borrowing from banks stood at Tk 94,282 crore in FY2023-24, while in FY2022-23 it reached a record Tk 1,22,980 crore, driven by increased fiscal expenditure.

Analysts attributed the decline in domestic borrowing to a sharp rise in foreign loan inflows, particularly in the final month of the fiscal year. In June alone, Bangladesh received $3.5 billion in external financing, including $1.3 billion from the International Monetary Fund (IMF).

Additional disbursements came from the Asian Development Bank (ADB), the World Bank, and the Japan International Cooperation Agency (JICA).

The reduction in reliance on domestic borrowing came despite a significant shortfall in revenue collection. The National Board of Revenue (NBR) missed its revised collection target by Tk 1 lakh crore. The target had initially been set at Tk 4.80 lakh crore for FY2024-25, later revised to Tk 4.63 lakh crore.

While the government’s overall borrowing from the banking sector remained below the annual target, borrowing from commercial banks rose notably. During the fiscal year, Tk 1,36,369 crore was borrowed from commercial banks, while Tk 63,997 crore was repaid to Bangladesh Bank-reflecting a shift away from direct central bank financing.

Bankers noted that the government’s increased borrowing from commercial banks was driven by the attractive yields on treasury instruments. Treasury bill rates climbed above 11%, with government bonds offering yields of up to 12%, prompting banks to invest more heavily in these instruments.

Several banks, constrained by financial instability and regulatory restrictions, found themselves unable to issue new loans. Following the discovery of widespread irregularities, the central bank had imposed lending restrictions on multiple institutions, leaving them unable to meet depositor obligations.

With few viable lending opportunities amid a volatile economic environment, many banks turned to government securities as a safe investment option.

Despite the availability of liquidity in the market, the overall lending capacity of banks remained weak, hampered by rising non-performing loans (NPLs), increasing cash withdrawals, and higher levels of currency circulation outside the formal banking system. Persistently high inflation further compounded these challenges.

Experts suggest that while foreign financing has provided temporary relief, sustainable improvements in revenue mobilisation and banking sector governance will be crucial to maintaining fiscal stability in the coming years.