REJAUL KARIM BYRON and MAHMUDUL HASAN

The government is planning to significantly reduce its bank borrowing target in the upcoming fiscal year as it aims to narrow the budget deficit by scaling down the overall budget size.

The target is set to be slashed by nearly 25 percent in the budget for FY26, dropping to Tk 104,000 crore.

The budget deficit for the outgoing fiscal year is also likely to shrink by around Tk 30,000 crore to Tk 226,000 crore, according to a finance ministry official.

To manage the deficit in the upcoming budget, the government is expected to rely more on foreign borrowing rather than domestic sources, especially banks, as interest rates on foreign loans are comparatively lower.

The slow implementation of the Annual Development Programme (ADP) in the current fiscal year and efforts to curb inflation are also expected to contribute to a reduced bank borrowing target.

As a result, the national budget for FY26 is projected at Tk 790,000 crore -- Tk 7,000 crore less than the original budget for the current year, which would mark the first time in recent memory that the overall budget would see a contraction.

Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, said the government’s move to reduce bank borrowing is linked to its lower deficit target.

“Bank borrowing should be reduced because if the government takes a large portion of available credit, the private sector won’t have enough access to loans,” he added.

The interest rate on treasury bonds and bills is currently very high. If banks have a greater opportunity to lend money to the government, they will be less inclined to invest in the private sector, he said.