Government Seeks $1.5 Billion in Budgetary Assistance

In the first three months of the current fiscal year, the Bangladesh government nearly doubled its borrowing from commercial banks, increasing it to Tk47,209 crore from Tk24,474 crore last year, a 93% rise. This spike is primarily due to lower revenue collection and attractive high interest rates on treasury bills and bonds, as demand for private sector loans declines.

The interim government of Bangladesh has begun the process to join the Regional Comprehensive Economic Partnership (RCEP), an economic bloc accounting for one-third of global GDP. The previous administration had paused this initiative due to recent elections. A meeting in August 2023 indicated that joining RCEP could boost Bangladesh's exports by 17.37%.

The ownership pattern in Bangladesh's government securities (G-sec) market is shifting as individual and institutional investors increasingly dominate, moving funds away from banks. This change is driven by higher returns from treasury bills and bonds, resulting in stagnant deposit growth for banks, which currently ranges between 9% and 10.5%.

Bangladesh's foreign debt servicing is set to reach a record $5.3 billion in FY27, with $1.9 billion for interest and $3.4 billion for principal repayments. While this peak is expected, repayments will decline in subsequent years. In FY26, total servicing is projected at $5 billion.

At the beginning of the current fiscal year, the ousted Awami League government borrowed extensively from bank and non-bank sources, exceeding BDT 232 billion in July alone, according to the Bangladesh Bank. Net borrowing from banks reached BDT 189.08 billion, a significant increase from BDT 6.9 billion in July of the previous year, coinciding with widespread student protests for quota reform that disrupted normal life and business activities. Borrowing from non-bank sources also rose sharply to BDT 42.94 billion, up from BDT 9.33 billion last year.

Private-sector credit flows in Bangladesh have decreased due to the August political upheaval that led to the fall of Sheikh Hasina's regime, causing economic activities to stall. Credit growth fell to 9.86% year-on-year in August 2024, down from 10.13% in July, despite slightly exceeding the Bangladesh Bank's target of 9.80%.