The government is planning to significantly reduce its bank borrowing target in the upcoming fiscal year as it aims to narrow the budget deficit by scaling down the overall budget size.

The government’s net bank borrowing has risen sharply due to lacklustre tax collection, slow private sector credit growth and the overall economic slowdown since the political changeover in August last year.

The government’s net borrowing from the banking system rose in the first two and half months of the current fiscal year in the face of falling tax collection and surging foreign debt servicing costs, raising concerns of a crowding out effect on private credit.

The government’s borrowing from the banking system has remained in check so far in the ongoing fiscal year thanks to lower expenditures and higher revenue collection.