The interim government’s reliance on the banking sector surged significantly to meet development project costs and other expenditures, with borrowing from internal banks reaching over Tk 73,000 crore in the first seven months of the current fiscal year, FY2025-26.

According to a report from Bangladesh Bank, 81 percent of the government's total domestic and foreign loans between July and January were sourced from the internal banking system. The total net borrowing from both local and international sources stood at approximately Tk 90,000 crore during this period.

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Economists warn that excessive government borrowing from banks can crowd out the private sector, discouraging investment and creating pressure for interest rate hikes. This comes at a time when private sector credit flow has already hit a record low due to political instability ahead of the 13th national elections.

Central bank officials identified several factors behind the rapid increase in bank loans. A primary reason is the government’s capital support for the "Combined Islamic Bank," formed by merging five banks. In the first week of last December, the government injected approximately Tk 20,000 crore into the bank, a large portion of which was financed through bank borrowing.

Additionally, while revenue collection fell short of targets in the first half of the fiscal year, operating expenses rose significantly, forcing the interim government to lean more heavily on the banking sector.

The government proposed a budget of Tk 7.90 lakh crore for the FY2025-26, with an overall deficit (including grants) of Tk 2.21 lakh crore, or 3.5 percent of GDP. To bridge this gap, the government planned to borrow Tk 1.25 lakh crore from domestic sources, including Tk 1.04 lakh crore from the banking system and Tk 21,000 crore from non-banking sources.

However, data shows a sharp shift in borrowing patterns.

Net borrowing reached Tk 73,035 crore from July to January, nearly an eight-fold increase compared to Tk 9,442 crore during the same period of the previous fiscal year.

Borrowing from non-banking sources plummeted to Tk 7,216 crore, down from Tk 25,864 crore in the previous year.

The total stock of domestic debt stood at Tk 10.37 lakh crore as of January 2025, an increase of over Tk 1.51 lakh crore within a single year.

The report also highlighted a dwindling contribution from external sources. In the first seven months of FY 2025-26, net foreign borrowing amounted to only Tk 9,832 crore, accounting for less than 11 percent of total loans.

In contrast, the government had secured approximately Tk 27,964 crore from foreign sources during the same period in the previous fiscal year.

Experts emphasized the need for a balanced debt management strategy to attract private investment and ensure long-term economic stability.