Bangladesh's government is becoming increasingly reliant on commercial banks to bridge its widening budget deficit, as borrowing from the banking system continues to rise at an accelerated pace. In the first nine months of the current fiscal year (July 2024 to March 2025), the government has borrowed over Tk 93,000 crore from commercial banks, while completely refraining from borrowing from the Bangladesh Bank, the central monetary authority.
This steep accumulation of debt marks a significant shift in the government's fiscal strategy, with its net debt from the banking system climbing to about Tk 52,000 crore during this period. In contrast, net borrowing in the first seven months (up to January) was just Tk 13,500 crore-indicating that the government's net debt has surged more than three-and-a-half times in just the last two months.
This dramatic increase has raised questions about the sustainability of the government's financing strategy, particularly in an environment of low revenue collection, subdued foreign financing, and monetary tightening aimed at containing inflation.
Breakdown of the Borrowing Figures: According to Bangladesh Bank data, as of June 30, 2024, the government's outstanding debt from commercial banks stood at Tk 3,18,441 crore. By March 29, 2025, this had increased to Tk 4,11,813 crore. This represents a net increase of Tk 93,371.6 crore in just nine months-already exceeding the full-year revised target of Tk 99,000 crore set in the current fiscal year's budget.
Interestingly, the government has not borrowed a single taka from the Bangladesh Bank during the same period. Instead, it has repaid Tk 41,388 crore of its earlier liabilities to the central bank. This is a significant move, especially given that borrowing from the central bank typically involves money creation and is often linked to inflationary pressure. In comparison, during the same period of the previous fiscal year, the government had repaid Tk 29,904 crore to the Bangladesh Bank.At the end of June 2024, the government's outstanding balance with the Bangladesh Bank was Tk 1,56,480 crore. This has now come down to Tk 1,14,659 crore, a clear indicator of its decision to avoid fresh borrowing from the central bank amid high inflation.
Net Borrowing Surge in Final Two Months: While the government's borrowing from banks in the first seven months was moderate-around Tk 68,930 crore-it rose sharply in February and March. By March 29, net borrowing stood at Tk 51,982 crore, up from Tk 13,570 crore at the end of January. This indicates an aggressive debt accumulation of over Tk 38,000 crore in just two months.A comparison with the previous fiscal year also highlights the stark increase. In the first nine months of the FY2023-24 period, net borrowing stood at Tk 29,939 crore-roughly 42 percent less than the current year's comparable figure.This rapid increase points to growing fiscal stress and suggests that the government is struggling to meet its expenditure obligations without significantly raising borrowing levels.
What's Driving the Surge in Government Borrowing: Experts and policymakers point to three primary causes behind this steep rise in borrowing:
Sluggish Revenue Collection: Revenue mobilization has failed to meet expectations in the current fiscal year. According to data from the National Board of Revenue (NBR), collections in key sectors such as VAT, customs, and income tax have consistently fallen short of their targets. This underperformance has compelled the government to rely more heavily on domestic borrowing to finance its expenditures, including salaries, subsidies, social safety net payments, and development projects.
Reduced External Financing: The flow of foreign loans and grants has also slowed. Geopolitical uncertainties, delays in aid disbursements, and stricter conditionalities imposed by foreign lenders have collectively resulted in a shortfall in the government's anticipated external financing.As a result, what was expected to be supplemented through concessional external loans now has to be covered domestically-primarily through commercial bank borrowing.
Fall in Net Sales of Savings Certificates: the government's traditional fallback - national savings certificate-has not performed as expected. Citizens are now redeeming more certificates than they are purchasing, owing to inflationary pressures and better returns from other financial instruments such as bank deposits and the stock market. This has reduced a once-reliable non-bank financing source, forcing the government to borrow more from the banking system.
Shift Away from Central Bank Borrowing: A Policy Choice: Bangladesh Bank has maintained a strict stance on not printing money to finance government deficits in the current fiscal year, a policy shift driven by the need to rein in inflation, which has remained above target for the past two years.
Historically, borrowing from the central bank-referred to as "monetary financing"-has been a common practice, especially during times of fiscal distress. However, such borrowing is effectively equivalent to printing money, and in an inflation-prone environment, it risks stoking further price pressures.By choosing to repay Tk 41,388 crore to Bangladesh Bank instead of borrowing afresh, the government appears to be trying to keep inflation in check-though at the cost of crowding out private sector credit from commercial banks.
Implications for the Banking Sector: The government's increased reliance on commercial banks has several implications:Crowding Out Effect: With the government absorbing a larger share of available credit, private sector borrowers may face greater difficulty accessing loans. This can hamper investment and slow down economic growth.
Liquidity Stress: Banks may find themselves under increased liquidity pressure if the demand for credit rises across sectors. Some banks have already begun to tighten their lending policies.
Interest Rate Pressures: Rising government borrowing could push up interest rates in the domestic market, increasing the cost of borrowing for both businesses and consumers.
Budgetary Revisions Reflect the Ground Reality: Recognizing the constraints and evolving fiscal landscape, the government has already revised its bank borrowing target. Originally, the FY2024-25 budget had set a borrowing goal of Tk 1,37,500 crore from the banking system. However, the revised target now stands at Tk 99,000 crore-a 27 percent reduction.
The initial reduction was prompted by slower-than-expected borrowing in the first half of the fiscal year. But as the recent data shows, the pace has picked up dramatically in the third quarter, suggesting that even the revised target might be breached if current trends continue.
Long-Term Fiscal Challenges: Economists warn that the government's growing reliance on bank borrowing is a sign of deeper structural problems in the fiscal system."Unless the government can significantly enhance its revenue collection, borrowing will continue to spiral, putting pressure on the financial system and potentially crowding out the private sector," said Dr. Selim Raihan, Executive Director of SANEM and Professor of Economics at the University of Dhaka.
He added that while avoiding central bank borrowing is a sound monetary policy choice, the government must simultaneously accelerate tax reforms, broaden the tax base, and reduce non-productive expenditures to manage its fiscal deficits sustainably.
Looking Ahead: Balancing Act Required: With just three months left in the current fiscal year, the government faces a tight balancing act. Meeting its expenditure needs without destabilizing the banking system or stoking inflation will be a delicate task.
On one hand, the finance ministry must ensure that priority projects and public services are not starved of funds. On the other, Bangladesh Bank must uphold monetary discipline and maintain liquidity in the market to support economic recovery.The upcoming national budget for FY2025-26, scheduled to be presented in June, will likely reflect these tensions. Observers expect a continued emphasis on austerity, efficiency in public spending, and perhaps new measures to boost revenue collection and encourage foreign investment.
The sharp rise in the government's bank borrowing during the current fiscal year highlights mounting fiscal pressures, a shrinking pool of alternative financing options, and a determined-but risky-strategy to avoid inflation by steering clear of central bank lending.As the government continues to walk this fiscal tightrope, the stakes are high. Without meaningful reform in revenue generation and a revival in foreign inflows, continued reliance on bank borrowing could strain the financial system and complicate the macroeconomic outlook. The coming months will be critical in determining whether the government can manage this debt surge without compromising economic stability or derailing growth.
