Heavy borrowing from the banking system, coupled with a deepening revenue shortfall and persistently weak private sector credit growth, has revealed the government’s mounting fiscal pressure.
Economists have warned that by increasing spending on new projects and rising subsidies, the government is inviting further distress, describing the situation as “messy.”
With nearly three months remaining in the fiscal year, the government’s borrowing from the banking system has already surpassed its full-year target.
According to Bangladesh Bank data, the government has taken Tk1,12,711 crore against the Tk1,04,000 crore target for the fiscal year 2025-26 and continues to raise funds, including an additional Tk5,000 crore through a special auction of 91-day treasury bills, just days after a similar operation.
This comes as the National Board of Revenue (NBR) missed its collection target by Tk71,472 crore in the first eight months of the year, with the shortfall expected to exceed Tk1 lakh crore by year-end.
Former lead economist of the World Bank’s Dhaka office Zahid Hussain warned that the situation is moving towards a point where fiscal arithmetic may no longer hold.
He cautioned the government, adding, “If you spend money you do not have, you are only deepening your own distress.”
Responding to whether increased spending under such conditions is prudent, he said the answer depends on how that spending is financed and what returns it generates in the future.
“Even if spending is financed through borrowing, that money will have to be repaid. The key question is whether it creates future income,” he said.
Meanwhile, private sector credit growth has remained stagnant around 6 per cent for eight consecutive months, pointing to a prolonged slowdown in investment demand. These trends indicate a clear shift in the economy: as revenue weakens and private borrowing stalls, the government is becoming increasingly reliant on domestic banks to finance its spending.
This shift is evident in recent liquidity operations and market responses. Despite Bangladesh Bank absorbing Tk11,500 crore through reverse repo operations, treasury bill auctions have been heavily oversubscribed.
On 2 April, bids worth Tk16,772 crore were received against an offer of Tk5,000 crore, with officials indicating that even larger amounts could have been raised earlier in the week.
Cut-off yields, which were above 10 per cent before March, have slightly decreased but remain high. On 22 February, rates were 10.02 per cent for 91-day bills, 10.11 per cent for 182-day bills, and 10.07 per cent for 364-day bills.
Since March, yields have dropped slightly below 10 per cent, with 91-day bills priced at 9.98 per cent on 1 April, 9.88 per cent on 2 April, and 9.95 per cent on 5 April. This indicates strong demand even as borrowing costs remain elevated.
The contrast is striking. Liquidity in the banking system is ample, yet private sector credit is not expanding. From July to February, credit growth has remained within a narrow range between 6.03 per cent and 6.58 per cent, showing no sustained recovery. Banks have the funds, but businesses are not borrowing.
This divergence is at the heart of the current macroeconomic situation.
On the fiscal side, a widening revenue shortfall has reduced the government’s primary funding source, forcing greater reliance on bank borrowing to meet expenditure commitments. With limited scope for immediate spending cuts and delays in external financing, domestic borrowing has become the primary solution.
On the monetary side, excess liquidity is being managed through reverse repo operations, even as banks direct funds into government securities. The system is not short of money. It is short of demand.
This has created a temporary equilibrium where government borrowing is easily absorbed, auctions remain oversubscribed, and financial conditions appear stable. However, this stability is fragile.
If private sector demand picks up while government borrowing stays elevated, competition for bank funds could intensify. This could push up interest rates and limit credit availability for businesses. At the same time, reliance on short-term instruments like 91-day treasury bills increases refinancing pressure and interest costs.
Analysts suggest that the data presents a clear conclusion: money is available, but it is not driving growth.
“On one hand, we are expanding spending through various projects. On the other, subsidies on energy and fertiliser are rising, revenue is not growing, yet the government says it wants to reduce reliance on borrowing. How do you reconcile these three?” Zahid Hussain told TIMES of Bangladesh.
Economic analyst Mamun Rashid warned that the current trajectory of fiscal policy risks pushing the economy into deeper strain. “If things continue this way, it will eventually reach a breaking point,” he told TIMES.
Questioning spending priorities amid mounting fiscal pressure, he added: “Why is the government moving to allocate Tk20 crore each to MPs, as was done during the previous Awami League period, at a time of such fiscal stress?”
He also raised concerns over subsidy policy, saying: “Providing subsidies on diesel can be justified, but why extend subsidies to petrol, octane and jet fuel?”
