Government borrowing from the banking system declined by Tk 426 crore during July-September of the 2025-26 fiscal year, reflecting the government鈥檚 cautious approach to managing inflation and borrowing costs.
According to Bangladesh Bank data, the government borrowed Tk 4,468 crore from the central bank during the first quarter, but repaid Tk 4,895 crore, resulting in negative net borrowing of Tk 426 crore from the banking system.
The government had earlier set a target of Tk 1,04,000 crore in net borrowing from banks to finance the fiscal deficit for FY26.
Banking officials said that the government had been deliberately restraining borrowing from commercial banks, which required issuing treasury bills and bonds at higher interest rates.
This restraint aligns with the central bank鈥檚 monetary policy objective to keep inflation below 7 per cent by December and reduce dependence on high-powered money creation.
Officials at the finance division and central bank noted that borrowing from commercial banks became less attractive due to high interest rates, which increased the government鈥檚 debt-servicing burden.
Instead, the government has recently preferred external borrowing from multilateral and bilateral sources at lower costs.
However, a senior Bangladesh Bank official said that borrowing could rise later in the fiscal year as election-related expenditures increased and development projects accelerated.
The borrowing pattern marks a continuation of a trend observed in FY25, when the government鈥檚 net borrowing from the banking system fell to Tk 72,372 crore 鈥� well below target of Tk 99,000 crore and the lowest in four years.
The reduction was largely attributed to higher foreign loan inflows and improved fiscal management.
In FY25, borrowing from commercial banks surged to Tk 1,36,369 crore, while repayments to the Bangladesh Bank stood at Tk 63,997 crore, indicating a shift away from direct central bank financing.
This shift was also influenced by elevated yields on treasury instruments at that time, which had encouraged banks to invest in government securities.
By contrast, treasury bill and bond rates have fallen sharply 鈥� from around 12 per cent in June to 9.5 per cent in October 鈥� due to lower government demand for funds.
Bankers expected yields to decline further as liquidity in the banking system remains ample and private credit growth remains sluggish.
Private sector credit growth slowed to 6.35 per cent in August, reflecting weak business confidence amid a cautious investment climate.
Inflation, however, came down and remained below 9 per cent during June to September after remaining above that level for 27 consecutive months, offering some relief to policymakers.
During the July-September period, the government also borrowed Tk 9,626 crore from non-banking sources through treasury instruments and Tk 9,199 crore from domestic sources excluding the national savings certificate portfolio.
