Govt’s heavy bank borrowing tightens liquidity: DCCI

The heavy government borrowing from the banking system tightens liquidity, making it more difficult and costly for businesses, particularly small and medium enterprises (SMEs), claimed The Dhaka Chamber of Commerce and Industry (DCCI) at a pre-budget discussion on Monday.

The chamber urged the government to cut its high reliance on borrowing from banks, raising concerns that it would crowd out private sector credit.

Between July last year and April 1, the interim government and the new BNP-led government had together borrowed at least Tk 1.03 lakh crore, or 99.54 percent of the target for the current fiscal year 2025-26.

DCCI highlighted inefficiencies in public spending and demanded improvements in expenditure management.

“To sustain private sector-led growth, it is critical to ease pressure on the banking system by limiting the government’s dependence on domestic sources,” the DCCI said in its proposals for the national budget for the fiscal year 2026-27 at a discussion at InterContinental Dhaka with participation from policymakers, economists, and business leaders.

At the event, International Chamber of Commerce Bangladesh (ICCB) President Mahbubur Rahman warned that nearly half of the banks in Bangladesh are on the verge of bankruptcy, raising serious concerns over the stability of the financial sector.

“Almost half of the country’s banks are in a situation where they could go bankrupt,” he said, noting that the risk extends to all state-owned banks as well.

Despite this, no bank has formally entered bankruptcy proceedings due to weak enforcement of banking and insolvency laws, allowing troubled institutions to continue operating.

DCCI proposed raising the individual tax-free income threshold to Tk5 lakh and capping the highest personal income tax rate at 25 percent as part of its recommendations for the national budget for FY2026-27.

The trade association also recommends setting the corporate tax rate for non-listed companies at 25 percent, aligning it with listed firms to promote equity and encourage formalisation.

To improve transparency, the chamber proposed a fully automated corporate tax return system.

It also called for integrating the e-TDS platform with the National Board of Revenue (NBR) to enhance efficiency and verification.

Additionally, DCCI suggested gradually phasing out advance tax at the import stage for manufacturers while reducing it for commercial importers.

It also recommended a streamlined, single-step refund mechanism to speed up VAT reimbursements and reduce administrative bottlenecks.

To stimulate private sector growth, DCCI urged rationalisation of interest rates and a reduction in government borrowing from domestic banks.

It also stressed expanding access to finance through refinancing schemes and credit guarantee programmes, particularly for SMEs.

The chamber highlighted the need to deepen the capital market by increasing IPOs and encouraging both large corporations and SMEs to get listed.

It also recommended introducing long-term financial instruments, such as bonds, to diversify funding sources.

With Bangladesh approaching LDC graduation, DCCI emphasised targeted policy support for priority sectors including leather, pharmaceuticals, ICT, electronics, and light engineering.

It also proposed allocating funds for emerging industries like semiconductor research and artificial intelligence, along with establishing specialised industrial zones.

To accelerate infrastructure growth, the chamber proposed tax incentives, including exemptions on high-cost construction materials and machinery.

It also recommended introducing infrastructure bonds and sukuk to attract long-term investment.