STAR BUSINESS REPORT

The government’s heavy reliance on the banking system to cover its fiscal deficit continues to effectively crowd out the private sector, leaving little room for productive private investment, said a report by the General Economics Division (GED) released yesterday.

The GED, a division under the Planning Ministry, said that while private sector credit growth decelerated to a historic low of 6.35 percent in August this year, net credit to the public sector increased by 16.59 percent in the same month.

The report stated that the slowing growth of private credit signals a deep-seated reluctance among businesses to invest and expand owing to high interest rates, cautious lending, and political and economic uncertainty.

On the other hand, the expansion of credit to the public sector was driven primarily by the government’s need to finance its fiscal deficit and expenditures, exacerbated by a shortfall in tax revenue collection, it said.

The August-October 2025 period demonstrated the persistent trade-off inherent in Bangladesh Bank’s policies, according to the October issue of the Economic Update and Outlook.

“While the central bank’s tight monetary stance contributed to a gradual easing of point-to-point inflation, it came at a significant cost to growth,” said the report.

It noted that inflation, while still elevated, has shown signs of stability in recent months.

After falling to 8.48 percent in June from 9.05 percent in May, inflation rose slightly to 8.36 percent in September from 8.29 percent a month earlier.

However, falling private sector credit “directly translates into reduced investment and job creation.”

“The historic low in private sector credit growth signals a serious challenge to future economic activity, and the continued high reliance of the government on bank borrowing further complicates the situation,” it said.