A multi-year credit drought in Bangladesh’s private sector has deepened while government borrowing from the banking system has increased. Central bank data show the government took BDT 756.2 billion more in net bank credit during the first ten months of the 2025–26 fiscal year than it did a year earlier. Private-sector borrowing fell by BDT 250 billion over the same period. The trend intensified through May and June, officials said, leaving entrepreneurs more credit-starved than before.

Net government borrowing from banks stood at BDT 325.62 billion in the July to April period of FY 2024–25. It reached BDT 1,081.82 billion in the same stretch this year — a threefold rise. The original budget had set a bank-borrowing target of BDT 1,040 billion. The revised budget raised it to BDT 1,180 billion.

Finance ministry and Bangladesh Bank officials now expect net borrowing to exceed even the revised target by the fiscal year-end. The revenue shortfall had already topped BDT 1.04 trillion by April and is forecast to widen further in May and June. A large portion of that gap must be met through bank credit.

This outsized reliance on banks is pushing the private sector into an ever more precarious condition, according to former finance secretary and comptroller and auditor general Mohammad Muslim Chowdhury. “Government expenditure far exceeds revenue capacity. That’s why borrowing is overshooting targets,” he told Bonik Barta. “High interest rates on treasury bills and bonds are also driving up the cost of this borrowing. No effective steps to curb spending or raise revenue are yet visible.”

“The private sector has been struggling for years. Entrepreneurs are either not getting bank loans or have no appetite to expand their businesses,” the former CAG said. “Interest rates are also quite high, and the prevailing economic conditions don’t favour a private-sector revival. To create jobs and get the economy moving, the private sector must be rejuvenated. There’s no alternative to increasing credit flow.”

The private sector accounts for roughly 95 percent of employment and more than 80 percent of GDP in Bangladesh. Yet it is this engine of the economy that has been languishing for years. Many banks have now withdrawn from private lending after a third of their loans turned non-performing. Central bank data show private-sector credit growth was a mere 4.75 percent in April this year — a nadir that bank executives call rare in the country’s history.

Even that meagre expansion does not signal fresh lending, the executives say. It reflects the capitalisation of unpaid interest on defaulted loans. Credit extended through past irregularities and graft has gone largely bad, yielding no revenue for the lenders. The accrual of overdue interest inflates the loan books of weak banks, while sounder lenders have seen their portfolios shrink.

BRAC Bank, widely rated as one of the country’s best-run banks, reported an outstanding loan book of BDT 731.40 billion at the end of December. By end-March it had fallen to BDT 717.08 billion. Over the same period, its investments in government bills and bonds climbed from BDT 419.37 billion to BDT 449.65 billion. Most healthier banks show a similar shift.

Central bank data corroborate the picture. Net private-sector credit flow reached BDT 558.38 billion in the first ten months of FY 2025–26, against BDT 805.93 billion in the same stretch of the 2024–25 fiscal year — a drop of BDT 247.55 billion.

Anwar-ul Alam Chowdhury Parvez, president of the Bangladesh Chamber of Industries, traced the imbalance to government yields. “The government is paying 10 to 12 percent on treasury bills and bonds. For three or four years, banks have preferred lending to the state over entrepreneurs,” he told Bonik Barta. “Unless government borrowing demand falls, the private-sector crisis won’t end. Interest rates were hiked in the name of containing inflation, but we see inflation rising instead. No entrepreneur can run a business at 14 or 15 percent interest. If this stagnation continues, the economy will face a far bigger disaster.”

When the BNP government took office in February this year, total public debt stood at more than BDT 23 trillion. By end-March it had climbed to nearly BDT 24 trillion, of which BDT 6.41 trillion was owed to the banking system. There is no sign the borrowing will slow soon. The finance division’s latest projections show that on the current trajectory the debt stock will reach roughly BDT 34 trillion by the 2028–29 fiscal year.

The division’s medium-term macroeconomic policy statement warns that debt will rise to a level that places heavy strain on the wider economy, private-sector growth and foreign-exchange reserves. It projects the total at BDT 26.33 trillion by the close of FY 2026–27, BDT 29.56 trillion the following year and BDT 33.77 trillion in FY 2028–29. Domestic borrowing would account for BDT 18.80 trillion and external debt for BDT 14.97 trillion.

The surge is multiplying interest costs. The government will pay BDT 1.27 trillion in interest in FY 2026–27, rising to BDT 1.62 trillion two years later. A large share of the budget will consequently be absorbed by servicing past obligations, squeezing development spending. Because the bulk of domestic debt is raised from banks, the private sector will suffer further.

Mashrur Arefin, chairman of the Association of Bankers, Bangladesh and managing director of City Bank PLC, said private credit demand has collapsed. “For several years, entrepreneurs have retreated from business expansion. Hardly any new entrepreneurs have emerged. That’s why private credit growth has dropped to around 4 percent. I have never seen such low demand in my banking career,” he told Bonik Barta.

Arefin said the government and central bank have taken steps to revive the private sector. “Bangladesh Bank has created a BDT 600 billion incentive fund. If implemented, the private sector will recover. I expect banks to play an effective role in implementing the scheme.”