For all latest news, follow The Daily Star’s Google News channel. - Government borrowing crowds out private investment
- Private credit growth hits historic low
- Tight monetary stance eases inflation slightly
- High inflation erodes savings, curbs deposits
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.
For a sustainable and robust economic recovery, it will be crucial to stimulate private investment, strike a balance between containing inflation, and foster an environment conducive to business growth, the GED said.
The report added that deposit growth showed a moderating but fluctuating trend in the early months of the current fiscal year (FY26), supported by reforms aimed at restoring public confidence.
“The subdued deposit growth is primarily influenced by high inflation, which continues to erode real disposable income and limit the capacity for household savings,” it said.
Strong remittance inflows and the government’s move to channel cash transfers through banks also contributed to the increase.
The GED report, citing the recent drop in rice prices, slowdown in exports, stability in the exchange rate amid rising foreign exchange reserves, and increased revenue collection, offered “cautious optimism for the coming months.”
“As the election date approaches rapidly, the economy will experience some election-related activities in the coming months, which will boost confidence among economic actors and investors,” it said.