Budget Cuts Bank Borrowing to Rebuild Public Confidence

The government has proposed reducing its borrowing from the banking sector by Tk 6,000 crore in the national budget for the 2026-27 fiscal year, aiming to strengthen the banking system, restore public confidence and create more room for private-sector investment.

Finance Minister Amir Khosru Mahmud Chowdhury unveiled the Tk 9.38 lakh crore budget on Thursday, the first full budget of the BNP-led government under Prime Minister Tarique Rahman. The proposed budget projects a deficit of Tk 2.43 lakh crore, equivalent to 3.6 percent of the country's Gross Domestic Product (GDP).

To finance the deficit, the government plans to borrow Tk 1.12 lakh crore from the banking sector, down from the revised target of Tk 1.18 lakh crore in the outgoing fiscal year.

Presenting the budget, the finance minister said the government is seeking to reduce dependence on debt-driven growth and promote productive investment, private-sector expansion and stronger financial institutions.

A key feature of the budget is the reform and recovery of the banking sector, which has faced challenges from rising non-performing loans, governance weaknesses and declining public trust.

To support these efforts, the government has allocated Tk 40,000 crore for the recapitalisation of weak banks. The fund will be used to strengthen the financial health of troubled institutions, protect depositors and improve overall stability in the banking sector.

The finance minister said restoring public confidence in banks remains a top priority. He noted that the government is introducing management reforms and a risk-based supervisory framework to improve accountability and transparency.

The reform package also includes measures to curb political interference in banking operations, prevent undue family influence in financial institutions and strengthen efforts to recover funds allegedly laundered abroad.

To reduce pressure on banks, the government plans to expand alternative financing sources through the bond market. The budget highlights the promotion of green bonds, sukuk bonds and corporate bonds as part of efforts to deepen the capital market and diversify funding options.

Economists have long warned that excessive government borrowing from banks can crowd out private-sector lending by reducing the availability of credit for businesses. Private-sector credit growth recently fell to a record low of 4.7 percent.

Government officials expect the lower borrowing target to help reverse the trend and support private-sector credit growth of 9 to 10 percent in the medium term.

While welcoming the reduction, economists have stressed the need for greater reliance on external financing and stronger revenue mobilisation to further ease pressure on the banking system.

The finance minister acknowledged that the government inherited significant fiscal pressures, including high debt-servicing costs and elevated borrowing needs. He said the administration aims to maintain fiscal discipline, enhance revenue collection and improve project implementation to gradually reduce the deficit and support sustainable economic growth.