The interim government has reversed years of aggressive bank borrowing, opting instead to repay outstanding loans in a move economists said could unlock fresh credit for the private sector and cool inflationary pressures.
The policy shift marks a clear departure from the previous administration, which had leaned heavily on bank financing to meet its fiscal needs, they said.
In contrast, the new government has prioritised debt reduction, expenditure restraint and project rationalisation, a combination analysts describe as rare in the country’s recent fiscal history.
“The country’s economic landscape has seen a notable change over the last year, as the interim government is repaying its outstanding loans to the banking system,” said Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD).
He said the administration’s approach is already forcing banks to reorient their portfolios towards the private sector after years of safe lending to the government.
Mustafizur Rahman praised the decision not to take fresh bank loans this fiscal year while paying down legacy debt, calling it “a clear example of fiscal discipline” and a shift towards “a more responsible pattern of public expenditure”.
Economist Abu Ahmed echoed that view, arguing that spending cuts – particularly on “highly ambitious and unnecessary” projects – had become essential to rebalance the credit market.
Ahmed, who also chairs the Investment Corporation of Bangladesh (ICB), noted that government borrowing had previously crowded out private investment by drawing banks into low-risk lending to the public sector.
“Banks got an opportunity to lend to the government, and they felt shy to invest in the private sector as there is a risk of recovery,” he said.
LND/SAE
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