The government is set to move away from its reliance on domestic borrowing to fund the budget deficit next fiscal year and go for foreign borrowing in a bid to free up resources for the private sector and contain inflationary pressures, according to the draft budget plan.
The overall deficit has been projected at Tk 2,35,000 crore, which is 3.4 percent of GDP and 17.5 percent higher than the revised target for this fiscal year.
The outgoing fiscal year’s deficit target stands at Tk 2,00,000 crore. The government borrowed Tk 1,37,000 crore from domestic sources and Tk 58,000 crore from abroad. About Tk 5,000 crore were grants.
The draft plan for next fiscal year says that net domestic borrowing is expected to fall by 13 percent to Tk 1,19,000 crore, with bank borrowing cut by more than 15 percent to Tk 1,00,000 crore. Net foreign borrowing is projected to surge by over 91 percent to Tk 1,11,000 crore. The remaining Tk 5,000 crore would come from grants.
This marks a departure from the medium-term macroeconomic policy statement prepared during the interim government, which had stressed a mixed financing strategy with greater reliance on treasury bonds.
That statement also warned of rising foreign interest rates and currency risks, suggesting domestic borrowing would remain the safer option.
The move aims to revive private investment, which has slumped in recent years, said finance ministry officials involved in the proceedings.
In March, private sector credit growth, which is a barometer of the private investment scenario, hit an all-time low of 4.72 percent, according to data from the Bangladesh Bank.
Earlier this week, BB rolled out a Tk 60,000 crore stimulus package, with about Tk 40,000 crore coming from the banks’ excess liquidity. Reducing government borrowing from banks is seen as essential to supporting this move.
To boost foreign borrowing, ministries have been instructed to expedite disbursement of funds already in the pipeline and repurpose funds for slow-moving projects. Officials also expect significant budget support next year, with the possibility of securing over $1 billion annually from the International Monetary Fund if a new programme can be negotiated.
Zahid Hussain, former lead economist of the World Bank’s Dhaka, cautioned against relying too much on foreign borrowing for funding the budget deficit.
“The issue is how much you can actually get -- the projection of more than Tk 1,00,000 crore is challenging,” he said, adding that at best Bangladesh might secure Tk 80,000–90,000 crore, provided pipeline funds are released.
He also warned that the domestic borrowing target would be difficult to maintain.
With a Tk 9,30,000 crore budget, even if borrowing is reduced by Tk 1,00,000 crore, the deficit could still reach Tk 250,000 crore.
Revenue collection is unlikely to exceed Tk 5,50,000 crore, meaning the government will inevitably need to borrow more from domestic sources, despite liquidity problems in banks.
Resorting to money printing would risk further inflation.
Besides, the BNP’s election manifesto pledged to reduce debt dependency, but this hinges on boosting revenue collection, Zahid said.
While some measures are planned, the extent of improvement remains uncertain.
“Aligning expectations with reality will be quite difficult,” he said.
Budget implementation data shows that in recent years, borrowing has been required not only for the development budget but also for the operating budget. As a result, interest payments have steadily increased year after year.
Bangladesh’s total public debt burden has crossed Tk 22,00,000 crore by December 2025 with a growing reliance on domestic sources as the government looked to “insulate the economy from foreign currency risks”.
Of the total debt, Tk 3,00,000 crore was borrowed during the interim government rule, according to the finance ministry’s latest quarterly bulletin.
The bulletin states the public debt stood at Tk 18,90,000 crore at the end of June 2024, a little over a month before the interim administration assumed power. The figure was Tk 13,44,000 crore at the end of June 2022.
During the interim government’s rule, domestic debt rose by Tk 1,70,000 crore, reaching Tk 12,50,000 crore by December. Foreign loans increased by Tk 1,47,000 crore to Tk 9,59,000 crore in the same period.
Domestic borrowing dominates the government’s overall debt portfolio.
At the end of 2025, the domestic and external liabilities constituted 57 percent and 43 percent of the total government debt stock.
“By focusing on the local market, the government is deepening domestic liquidity while reducing its exposure to exchange rate fluctuations,” the bulletin said.
