The government borrowed Tk 7,438 crore from the banking system in July, the first month of the 2025–26 financial year, to meet budgetary expenditure, according to Bangladesh Bank data.
During the same period, the government repaid Tk 4,350 crore to commercial banks, leaving net borrowing from the banking system at Tk 3,087 crore.
The increase in net credit to the government in July was largely due to borrowing from Bangladesh Bank through overdraft facilities.
 For FY26, the government set a target of Tk 1,04,000 crore in net borrowing from the banking system to finance its deficit.
Bankers said that the government has been cautious about heavy borrowing from commercial banks, which typically requires issuing treasury bills and bonds at higher rates.
To avoid the burden of costly borrowing, it has relied more on central bank financing at the policy rate of 10 per cent.
This has kept interest rates on government securities relatively subdued as financial institutions and wealthy individuals, flush with idle funds, rushed to invest in these risk-free instruments.
In July, the government borrowed Tk 12,640.5 crore by issuing treasury bonds of different maturities—Tk 4,140.5 crore from 2-year bonds, Tk 500 crore from 3-year bonds, Tk 3,000 crore from 5-year bonds, Tk 3,000 crore from 10-year bonds, and Tk 1,000 crore each from 15-year and 20-year bonds.
Over the same period, maturities worth Tk 10,640 crore fell due, including Tk 6,000 crore in 2-year bonds, Tk 4,500 crore in 5-year bonds, and Tk 140 crore in 15-year bonds.
Government borrowing trends in the previous fiscal year highlight a shift in financing strategies.
In FY25, borrowing from the banking system fell to Tk 72,372 crore, down sharply from Tk 94,282 crore in FY24 and far below the Tk 99,000 crore target.
It was the lowest level of bank borrowing in four years, compared with Tk 1,22,980 crore in FY23 and Tk 72,750 crore in FY22.
The decline was attributed to a surge in foreign loan inflows, which reduced the need for heavy domestic borrowing.
Even so, borrowing from commercial banks rose significantly in FY25. The government borrowed Tk 1,36,369 crore from commercial banks while repaying Tk 63,997 crore to Bangladesh Bank, effectively reducing reliance on central bank financing.
Bankers explained that the shift toward commercial banks was driven by the high yields on treasury instruments at that time.
Treasury bill rates had exceeded 11 per cent, and bond yields hovered around 12 per cent, offering banks lucrative investment opportunities at a time when private sector credit growth was slowing.
With limited appetite for lending to businesses due to economic uncertainty, banks preferred government securities as safe investments.
By the end of FY25, private sector credit growth had slowed to 6.49 per cent, reflecting waning business confidence.
Inflation, however, eased to below 9 per cent in June after persisting above that level for 27 consecutive months, providing some relief to monetary policymakers.
