The government borrowed Tk1.40 lakh crore from banks in FY26, nearly Tk22,000 crore above its revised target, as a massive revenue shortfall and rising expenditure widened the fiscal deficit.
Infographics: TBS
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Infographics: TBS
Highlights
- Government bank borrowing exceeds FY26 target by nearly Tk22,000 crore
- Borrowing from banks reaches Tk1.40 lakh crore against Tk1.18 lakh crore target
- Tk88,000 crore revenue shortfall drives higher reliance on bank financing
- Economists warn prolonged bank borrowing could crowd out private sector credit
- Weak private-sector demand allowed higher government borrowing without liquidity stress
- NBR revenue rises over 12% but misses FY26 target by nearly Tk88,000 crore
- ADP implementation hits 16-year low, weighing on revenue collection
- Economists urge stronger tax collection and greater use of external financing
The government exceeded its banking-sector borrowing target by nearly Tk22,000 crore during the just-concluded fiscal 2025-26 to finance a widening fiscal deficit caused by a massive revenue shortfall amid rising government expenditure.
According to Bangladesh Bank data, the government’s bank borrowing reached Tk1.40 lakh crore during FY26 against a revised target of Tk1.18 lakh crore. The original budget had envisaged bank borrowing of Tk1.04 lakh crore to finance the fiscal deficit, but the target was raised by around Tk14,000 crore in the budget announced in June amid growing financing needs.
The government’s outstanding net borrowing from the banking system stood at Tk6.87 lakh crore as of 23 June 2026, up from Tk5.50 lakh crore at the end of the previous fiscal year. Net borrowing increased by Tk1.37 lakh crore by 23 June and rose by a further Tk3,000 crore during the remaining days of the fiscal year.
Speaking to The Business Standard, economists attributed the higher borrowing to slower-than-expected revenue collection, increased operational expenditure, and rising financing requirements for development spending.
Bankers said borrowing from the banking sector accelerated during the final months of the fiscal year under the elected BNP government as both operational spending and implementation of the Annual Development Programme (ADP) gathered pace while revenue collection fell short of expectations.
They also noted that subdued private-sector credit demand during the year enabled the government to borrow more from banks without placing significant pressure on liquidity. However, they cautioned that if private-sector credit demand strengthens in the current fiscal year, the government may have to rely more heavily on higher revenue mobilisation and external financing to meet its funding requirements.
Bangladesh Bank data show the government also exceeded its borrowing target in FY25 under the interim administration. Against a target of Tk99,000 crore, it borrowed Tk1.14 lakh crore from the banking sector, about 15% above the target.
By contrast, the government borrowed around 21% less than its target in FY24, while borrowing in FY23 exceeded the target by about 2%.
Revenue shortfall drives borrowing
Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, said lower-than-expected revenue collection had increased the government’s reliance on bank borrowing to finance expenditure.
He said excessive government borrowing from banks could reduce the availability of credit for the private sector through the “crowding out” effect. However, he added that the impact has so far remained limited because private-sector credit demand has been relatively weak.
Mustafizur warned that continued reliance on bank borrowing would increase future debt servicing and interest payment obligations, making the approach unsustainable over the longer term.
He urged the government to strengthen tax administration by reducing leakages and expanding the use of technology to improve revenue collection.
Despite a sharp improvement in tax collection during May and June, the National Board of Revenue fell nearly Tk88,000 crore short of its revenue target in FY26.
According to the NBR’s preliminary estimates, revenue collection reached Tk4.15 lakh crore against a target of Tk5.03 lakh crore. Despite the shortfall, revenue increased by more than 12% compared with FY25.
NBR officials said the final collection figure could be higher, which would narrow the revenue shortfall and improve annual growth.
M Helal Ahmed Jony, a research fellow at Change Initiative, said higher government spending to implement commitments made in the BNP’s election manifesto had contributed to the increase in bank borrowing during FY26.
He also said weak private-sector activity had constrained revenue collection, while slower implementation of development projects reduced tax receipts linked to public investment.
Jony expressed optimism that private-sector activity and revenue collection would recover during the current fiscal year. He also urged the government to diversify its financing sources by mobilising household savings rather than relying heavily on bank borrowing, while increasing access to low-cost external financing.
Weak ADP implementation affects revenue
An NBR senior official, speaking on condition of anonymity, said a significant portion of government revenue is generated through the implementation of development projects. Slower execution of the Annual Development Programme, therefore, reduced revenue collection during the fiscal year.
According to the planning ministry, only 48% of the ADP was implemented during the first 11 months of FY26, marking the lowest implementation rate in 16 years.
The official also said a lack of confidence among field-level NBR officials had limited enforcement efforts beyond routine activities, suggesting that stronger initiatives could have increased tax collection.
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