Bangladesh Government Bank Borrowing Exceeds FY26 Target by Over Tk 47,500 Crore

Sohel Parvez, Dhaka — The Bangladesh government's net borrowing from the banking system stood at Tk 165,538 crore in fiscal year 2025-26, far exceeding its plan for the year amid falling foreign financing and lower-than-expected revenue collection, according to Bangladesh Bank (BB) data — a fiscal overrun that has raised alarm among economists about its implications for private sector credit and economic stability.

At the beginning of FY26, the government planned to borrow Tk 104,000 crore. It later revised its borrowing plan upward to Tk 118,000 crore for the year but ended up borrowing an additional Tk 47,538 crore — representing a 40 percent overshoot of the original target and a 40 percent overshoot of the revised target as well.

📊 FY26 Borrowing Trajectory

• 💰 Original borrowing plan (FY26 start): Tk 104,000 crore
• 💰 Revised borrowing plan: Tk 118,000 crore
• 💰 Actual borrowing (FY26 end): Tk 165,538 crore
• 💰 Overshoot vs revised target: Tk 47,538 crore (+40%)
• 💰 Overshoot vs original target: Tk 61,538 crore (+59%)
• 📊 Credit to public sector growth: 30 percent YoY (end-June 2026)
• 📊 Credit to private sector growth: 4.47 percent YoY (10-year low)

⚠️ Crowding Out Concerns

Two analysts have raised the alarm, warning that increased government borrowing could crowd out loans for the private sector and undermine economic stability and its gradual recovery.

"Persistent government borrowing creates two forms of crowding out," said Ashikur Rahman, Principal Economist at the Policy Research Institute (PRI) of Bangladesh. He said:

• 📊 Direct crowding out: banks prefer safe government securities over riskier private lending
• 📊 Interest rate pressure: continued borrowing puts upward pressure on rates, restricting credit for SMEs and new investment
• 📊 Development expenditure crowding out: salaries, subsidies, and interest payments crowd out development spending

"However, banks have a strong incentive to invest in relatively safe government securities rather than finance productive but riskier private activity. If investment demand recovers, continued government borrowing will place upward pressure on interest rates and restrict credit, particularly for SMEs, working capital and new investment," he said.

💰 NBR Revenue Performance

The BB, in its monthly report on major economic indicators, said that in FY26 the National Board of Revenue (NBR), which collects roughly 86 percent of total annual revenue, recorded 12 percent year-on-year growth in tax collection — a significant leap from 2.23 percent growth registered the previous year. However, revenue still lagged behind expectations:

• 📊 NBR actual collection (FY26): Tk 415,500 crore
• 📊 NBR revised target (FY26): Tk 503,500 crore
• 📊 Revenue shortfall: Tk 88,000 crore (only 82.60% of target achieved)
• 📊 Year-on-year growth: 12 percent (vs 2.23% previous year)
• 📊 10th consecutive year that NBR missed revised annual collection target

"Consequently, the government progressively relied more on borrowing to finance its deficit. Specifically, deficit financing was primarily sourced from domestic sources, with the banking system accounting for the major share of net domestic borrowing in FY26," the BB report said.

🏛 CPD's Fiscal Discipline Concern

Towfiqul Islam Khan, Additional Director, Research at the Centre for Policy Dialogue (CPD), said the substantial revenue shortfall is now evident, as is the extent to which bank borrowing overshot the target. "Together, these outcomes highlight a noteworthy absence of fiscal discipline."

📊 FY27 Outlook: Even More Challenging

For the current FY27, the NBR has been given a target of Tk 604,000 crore to finance the Tk 938,000 crore budget. The tax target is 45 percent higher than the actual collection in FY26, and it would be highly challenging for the NBR amid a slowdown in the economy.

Of the deficit estimated at Tk 243,000 crore, the government plans to borrow:

• 💰 Tk 127,000 crore from domestic sources
• 💰 Tk 112,000 crore from the banking sector

🌏 Foreign Financing Falls

The continued high borrowing from the banking sector, Ashikur Rahman said, has created a broader concern of "a growing fiscal-monetary contradiction". "Bangladesh Bank cannot sustainably reduce inflation and revive productive credit while fiscal policy continues to absorb a disproportionate share of banking resources. The inflationary risk would become greater if the central bank were ultimately required to accommodate this borrowing through additional liquidity," he warned.

The pressure on bank borrowing has intensified because foreign financing has fallen sharply:

• 📉 FY26 net foreign financing: decreased by 20 percent YoY
• 📉 July 2026 foreign loan disbursement: $180 million
• 📉 July 2026 foreign loan repayment: $453 million (2.5x disbursement)

🏛 RAPID's Warning

MA Razzaque, Chairman of Research and Policy Integration for Development (RAPID), said the government has already stretched expenditure well beyond what its current revenue capacity can comfortably support. "The pressure could intensify if expected foreign financing falls short, particularly as the FY27 budget appears to assume an ambitious level of external assistance."

Razzaque noted that the government is taking on more and more spending commitments:

• 💰 New pay scale (142 percent salary increase)
• 💰 Family Card Programme
• 💰 Support for business activity
• 💰 Help for financially troubled banks (Sammilito Islami Bank)
• 💰 Higher development spending

"But revenue is not growing fast enough, there has been little serious effort to cut or rationalise spending, and foreign aid is also likely to fall short. That makes bank borrowing the easy, sometimes seemingly the only, option, but for Bangladesh now it is an option we can increasingly ill afford," Razzaque said.

🌏 Strategic Implications

The government's bank borrowing overshoot carries several strategic implications:

• ⚠️ Crowding out private sector: 30% public sector credit growth vs 4.47% private
• ⚠️ Fiscal-monetary contradiction: BB cannot sustainably manage inflation with fiscal dominance
• ⚠️ FY27 NBR target unrealistic: 45% growth target amid economic slowdown
• ⚠️ 10-year revenue target miss pattern: structural NBR revenue mobilisation weakness
• ⚠️ Foreign financing decline: 20% YoY drop compounds bank borrowing pressure
• ⚠️ Investment recovery risk: government borrowing may constrain private credit revival

The FY26 borrowing overshoot therefore represents both a symptom and a cause of Bangladesh's broader fiscal challenges. As the country navigates the LDC graduation transition beginning November 2026 and seeks to sustain its growth trajectory toward the trillion-dollar economy ambition by 2034, the fiscal-monetary balance will be a critical determinant of macroeconomic stability. The FY27 budget's reliance on a 45 percent revenue growth target and continued high bank borrowing represents a fiscal strategy that, without significant revenue mobilisation reform, may prove unsustainable through the LDC graduation transition period.