Govt Contemplates to Raise Private Sector Credit to Revitalize Business
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The government is contemplating to boost investment, industrial production, and employment and credit to the private sector in the upcoming budget. Due to a prolonged tight monetary policy aimed at controlling inflation, credit flow to this sector had been low. To overcome the resulting sluggishness in business and trade, the government is now moving towards an expansionary strategy. With this intent, the credit target for the private sector has been set at Tk 20,625 crore. This is Tk 1,750 crore higher than the current fiscal year.
According to an analysis document from the Finance Division, the broad money supply (M2) growth for the 2026-27 fiscal year has been provisionally set at 11.5% (revised figure for the current year). The target for the next fiscal year has been increased to 12.8%. The targets for net domestic asset growth and private sector credit growth have also been raised, from 9.7% to 12.6% and from 8% to 9.4%, respectively.
Economists believe that simultaneously increasing these three indicators means the government wants to increase the flow of money in the economy in the upcoming fiscal year. The main goal is to revive stagnant investment, industrial production, and employment. However, a major risk is the concern that this could once again create inflationary pressure on the market.
It is known that businessmen are currently suffering the most from a credit crunch as well as high interest rates. New investment is low due to liquidity pressure in banks. Industrial entrepreneurs are not easily getting loans. Consequently, there is stagnation in new factory expansion, job creation, and production activities.
In this situation, the Finance Division views the target of increasing private sector credit as a business-friendly step. Because if bank credit increases, new investment in industry and trade could rise. Small and medium entrepreneurs, in particular, may get some relief.
When asked, Finance Minister Amir Khusru Mahmud Chowdhury spoke about the future, saying that to revive the economy, investment and expenditure must increase. Given the current state of the economy, if it cannot be pushed upward, stagnation will increase further. For this reason, the next budget will be large. He stated that poverty alleviation, infrastructure development, and job creation are not possible without a large budget. A large budget will be presented to revitalize investment and employment.
The plan to increase the supply of cash money in the market in the upcoming budget carries special significance. The target for money supply in the market for the current fiscal year is Tk 24,245 crore. This is increasing to Tk 27,347 crore. Generally, M2 refers to the total amount of cash in the market, bank deposits, and easily usable money. Increasing it means more money entering the economy. That is, if the flow of money in the market increases, business and trade will gain momentum, and purchasing and investment will increase.
Special Focus on the SME Sector
In particular, increased credit flow to the SME (Small and Medium Enterprise) sector can play a significant role in job creation. Because compared to large industries, small and medium industries generate more employment per unit of investment. According to sources, the major investment target in the upcoming budget is 34.5% of GDP. In monetary terms, this amounts to Tk 23,542 crore. Within this, the private investment target is Tk 14,570 crore, and the public investment target is Tk 8,972 crore.
According to relevant parties, next year's investment target is undoubtedly ambitious. Increased investment leads to job creation. Therefore, the government is taking a leap in this sector to overcome the investment drought, which will also generate employment. The government has promised to create one crore (10 million) jobs in its election manifesto. This will be implemented through increasing investment.
Reducing Reliance on Domestic Borrowing
Another important issue is the government's reliance on domestic debt. According to the Ministry of Finance, the net domestic asset target for the 2026-27 fiscal year is being raised from 9.7% to 12.6%. The plan to increase net domestic assets means enhancing the government's economic capacity through the banking sector. According to relevant parties, the government can increase credit flow to industry, exports, agriculture, and production sectors. This will create new employment, increase export earnings, and revive the stagnant industrial sector.
The Challenge of Defaulted Loans
Currently, the country's banking sector is under significant pressure from defaulted loans. At the same time, the capital shortfall in many banks is also concerning. In such a situation, the biggest challenge will be to ensure that any credit expansion goes to the actual productive sectors. Otherwise, instead of creating new jobs, new loans risk turning into new defaulted loans.
