The government is increasingly funding its operational expenditures through significant domestic bank borrowing. This fiscal strategy is driven by a combination of record-breaking deficits in tax collection and a substantial shortfall in anticipated foreign financial assistance. Despite these constraints, the state must sustain essential expenditures, including public sector salaries, allowances, interest payments on existing debts, subsidies, and the ongoing costs of national development projects. Consequently, domestic banking institutions have become the primary source of finance to sustain the daily financial obligations of the state.
Targets Exceeded Within the Initial Ten Months
For the current 2025-2026 fiscal year, the government initially formulated a target to borrow 1,04,000 crore Taka from the banking sector to bridge its budgetary deficit. However, official statistics covering the period from July to 10 May demonstrate that the government has already breached this annual limit. During these ten months, net government borrowing from banks reached 1,09,568 crore Taka, surpassing the full-year target well before the conclusion of the fiscal period.
According to the latest internal debt report published by Bangladesh Bank, the total outstanding balance of government bank loans stood at 5,50,905 crore Taka at the beginning of the fiscal year. Over the subsequent ten months, this volume expanded substantially, reaching a total of 6,60,473 crore Taka by 10 May. The data indicates a simultaneous escalation in borrowing from both the central monetary authority and commercial banking channels.
Record Deficits in National Revenue Generation
Financial sector experts point out that whilst revenue collection serves as the primary income stream for the state, the National Board of Revenue (NBR) has experienced a significant shortfall. During the first ten months of the 2025-2026 fiscal year, the deficit in customs duties and tax collection exceeded 1,00,000 crore Taka, representing the highest recorded revenue deficit in the history of the nation. This decline is largely attributed to a broader economic slowdown in trade and commerce, alongside a noticeable contraction in national imports.
Data from the NBR confirms that against a revised ten-month revenue target of 4,31,461.27 crore Taka, actual collections amounted to only 3,26,928.16 crore Taka, resulting in a deficit of 1,04,533 crore Taka. Although a growth rate of 10.60 per cent was achieved during this timeframe, the state would require an additional 1,76,000 crore Taka in the remaining period to fulfill its annual goal, a target that independent economists view as virtually impossible to attain.
Structural Risks to the Private Sector
The substantial volume of public borrowing has raised serious apprehensions among private sector entrepreneurs and economists. There are growing concerns that excessive government credit consumption will crowd out private enterprises, making it exceedingly difficult for businesses to secure necessary commercial credit. This competitive pressure on available banking funds is also expected to place upward pressure on commercial lending interest rates.
Commenting on these developments, Mohammad Nurul Amin, the Chairman of Bangladesh Krishi Bank and former Chairman of the Association of Bankers, Bangladesh (ABB), stated that a drop in tax revenues and delayed foreign budgetary support have compelled the state to depend heavily on domestic banking institutions. He cautioned that such patterns pose long-term structural risks to the macroeconomy:
“If the government secures credit from the central bank, it necessitates the creation of new high-powered money, which directly intensifies inflationary pressures. Conversely, intensive borrowing from commercial banks depletes institutional liquidity, threatening to contract the flow of credit to the private sector. Whilst the immediate impact remains partially obscured by currently subdued investment and credit growth, the state must explore alternative funding mechanisms to protect the future economy.”
Mr Amin further noted that expanding public debt directly increases national interest obligations, consuming a significant portion of subsequent annual budgets. He emphasized that unless borrowed capital is directed into economically productive sectors, it will strain national fiscal management and reflect a deficit in structural efficiency. To mitigate these risks, he recommended introducing sector-specific or ministry-specific bonds alongside standard treasury instruments to improve fiscal transparency and institutional accountability.
Shift Towards Commercial Bank Reliance
An analysis of central bank data reveals that the momentum of government bank borrowing escalated notably following the installation of the interim administration. During the initial seven months of the fiscal year, government borrowing stood at approximately 73,000 crore Taka. Following the assumption of office by the new administration in mid-February, the state faced immediate and severe economic pressures.
Globally, geopolitical developments, including conflicts involving Israel, the United States, and Iran, have introduced volatility into international markets, directly impacting the domestic economy. Simultaneously, institutional delays regarding the release of the next loan tranches from the International Monetary Fund (IMF) have exacerbated liquid currency shortages. Faced with sluggish foreign aid disbursements and a widening revenue gap, the government has increasingly relied on domestic channels.
Further analysis of the 1,09,568 crore Taka borrowed up to 10 May indicates that the vast majority of these funds were sourced directly from commercial banks via the issuance of short-term Treasury Bills and long-term Treasury Bonds. Bangladesh Bank supplied only 5,115 crore Taka of the total requirement, whilst commercial banking institutions provided the remaining 1,04,453 crore Taka. This distribution underscores that the government’s fiscal sustainability is currently reliant on the commercial banking sector, against a backdrop of a national external debt stock that stands at approximately 113 billion US dollars.