Government borrowing from banks has already exceeded its annual target in March, well before the fiscal year ends, signaling mounting fiscal strain and increasing pressure on the financial system.

Bangladesh Bank data showed that net government borrowing from the banking sector reached Tk 1,08,246 crore during July–March of FY26, surpassing the full-year target of Tk 1,04,000 crore three months ahead of schedule.

The figure also marked a sharp rise from Tk 87,440 crore in the same period of the previous fiscal year.

The early breach of the target reflects a widening gap between revenue and expenditure, forcing the government to rely heavily on bank financing to meet routine spending.

Weak tax collection, a slowing economy and external pressures linked to ongoing Middle East tensions have further strained budget financing.

Of the total borrowing, Tk 32,192 crore came from Bangladesh Bank and Tk 64,293 crore from commercial banks.

Borrowing from the central bank largely took the form of overdrafts, amounting to Tk 31,068 crore.

As a result, outstanding government borrowing from the banking system rose to about Tk 6.56 lakh crore.

Economists warned that increased reliance on central bank financing injects high-powered money into the economy, which can intensify inflationary pressures at a time when price levels remain elevated and monetary policy stays tight.

They noted that borrowing accelerated from late November as the government sought funds to cover operational expenses toward the end of the fiscal year.

Bankers said that the pressure on bank financing is unlikely to ease in the near term.

A large fiscal deficit, sluggish revenue growth, global uncertainties and a fragile recovery continue to drive government demand for funds.

The Middle East conflict has added another layer of risk by raising import costs, particularly for fuel, which could further widen the fiscal gap.

Heavy government borrowing is also constraining credit flow to the private sector.

Banks are increasingly allocating funds to government securities due to lower risk, leaving fewer resources available for businesses.

Such crowding-out effect has already reflected in weak private sector credit growth, which fell to a record low of 6.03 per cent in February.

Banks’ lending capacity has weakened further due to rising non-performing loans, deposit outflows and increased cash holdings outside the banking system amid high inflation.

While a few stronger banks maintain excess liquidity and continue investing in government instruments, many weaker banks face acute liquidity shortages.

The government had planned to borrow Tk 1.04 lakh crore from banks and Tk 21,000 crore from non-bank sources in FY26.

Rising debt has already increased the cost of servicing also.

Interest payments stood at Tk 1,32,460 crore in FY25, accounting for around 36 per cent of total revenue.

The Finance Division projects total public debt to reach Tk 23.42 lakh crore by the end of FY26.