At the end of June 2022, the total amount of deposits in the country’s banks stood at BDT 15.73 trillion. By the end of December last year, this figure rose to BDT 18.83 trillion. That means, during this period, deposits increased by over BDT 3.09 trillion. According to the Ministry of Finance and Bangladesh Bank, 87 percent of this additional deposit over the past two and a half years has been borrowed by the government. However, analysts believe that this borrowed amount has not significantly contributed to productive or public welfare sectors; instead, it has further increased the government’s debt burden.
On Monday (June 16), the Finance Division of the Ministry of Finance released the latest Quarterly Debt Bulletin regarding the government’s debt situation. It shows that by the end of December 2024, the government’s total debt stood at over BDT 19.44 trillion. Of this, BDT 11.07 trillion was borrowed from domestic sources. And within that domestic borrowing, BDT 6.90 trillion came from the banking system. Back in June 2022, the government’s borrowing from banks was BDT 4.20 trillion. This means, in the span of two and a half years, the government’s borrowing from banks increased by over BDT 2.70 trillion.
To cover budget deficits, the government mostly borrows from domestic sources such as banks, insurance companies, and financial institutions. These loans are taken through treasury bills and bonds, also known as government securities. Currently, treasury bills are issued for 14, 91, 182, and 364 days. Long-term borrowing is done through treasury bonds with maturities of 2, 5, 10, 15, and 20 years. Facing a financial crunch in 2019, the government also began issuing Special Purpose Treasury Bonds (SPTBs) to raise loans. Apart from bills and bonds, the government borrows directly from the public through savings certificates, savings bonds, and prize bonds.
According to the Finance Division, as of December last year, 62 percent of the government’s domestic borrowing came from banks. Among this, BDT 1.52 trillion was raised through treasury bills and BDT 5.11 trillion through treasury bonds and SPTBs. At the end of June 2022, the government’s borrowed amount through treasury bills stood at BDT 770.20 billion, and through treasury bonds and SPTBs at BDT 3.24 trillion. Of the total increase in government borrowing from banks over the last two and a half years, BDT 2.35 trillion was borrowed during the term of the ousted Awami League government, while BDT 341.14 billion was borrowed under the current interim government.
Dr. Mustafa K Mujeri, the former Chief Economist at Bangladesh Bank, believes the country’s heavy reliance on borrowing from the banking sector is due to the underdeveloped state of its capital market. Speaking to Bonik Barta, Dr. Mujeri, who is also the Executive Director of the Institute for Inclusive Finance and Development (InM), said, “In an ideal situation, long-term financing should come from the capital market and short-term or working capital loans should come from the banking sector. But since our capital market is not developed, we are not getting enough long-term financing from there. At the same time, non-bank financial institutions are also failing to play a meaningful role. As a result, both the private sector and the government are increasingly dependent on bank loans.”
Due to the government’s excessive borrowing, private sector entrepreneurs are struggling to access credit from banks. On this issue, Dr. Mujeri added, “Right now, private sector investment is stagnant, and no new investment is coming in. Production is also not increasing. So, the demand for loans in the private sector is low. This reflects the stagnant state of the economy. In such a situation, banks are investing in government treasury bills and bonds, considering them safe options. These investments offer high returns with low risk. But banks weren’t created to lend to the government. Their main responsibility is to energize the economy by lending to the private sector.”
In the 47 years of the post-independence period, Bangladesh’s total government debt stood at BDT 8.73 trillion. But in just five years after 2018, the government under Sheikh Hasina borrowed nearly BDT 10.5 trillion in new loans. Now, a large portion of the government’s operating expenses is going into repaying the interest on these high-interest loans. On August 5 last year, amid a student-led mass uprising, Sheikh Hasina—who had held on to power as Prime Minister for a decade and a half—fled the country. By the time she was ousted, she had left behind a debt burden of nearly BDT 20 trillion on the nation.
According to data from the Ministry of Finance, when Sheikh Hasina first assumed office as Prime Minister during FY 2009–10, the government’s total debt—domestic and foreign combined—stood at just over BDT 2.76 trillion. Of this, BDT 1.61 trillion was from foreign sources, and the remaining BDT 1.15 trillion was borrowed from domestic sources.
Economist Dr. Moinul Islam believes that Sheikh Hasina’s reckless decisions have plunged Bangladesh into a sea of debt. Speaking to Bonik Barta, he said, “In the name of development, Sheikh Hasina initiated many unnecessary and white-elephant projects. These projects were funded by domestic and foreign loans. Back then, when I criticized her policies, she dismissed me as ‘ignorant.’ But now it is being proven that I was right. In the name of development, Sheikh Hasina has drowned Bangladesh in debt. It will take Bangladesh at least a decade to recover from this.”
Due to the government’s increased borrowing from domestic sources—especially banks—interest rates on treasury bills are steadily rising. By the end of December 2023, the interest rate for two- and five-year treasury bills was below 11 percent. Within a year, rates for both crossed the 12 percent mark. During the same period, the interest rate for 15- and 20-year treasury bills increased from 11 percent to nearly 13 percent. As these rates go up, the government’s interest payments are also rising. In the first half of the current 2024–25 fiscal year (July to December), the government paid BDT 494.92 billion in interest on domestic loans. During the same period of the previous fiscal year, this amount was BDT 460.30 billion. In the first nine months (July to March) of the current fiscal year, interest payments on domestic debt totaled BDT 815.31 billion.
Like in previous years, the government continues to rely on debt to implement the national budget. In the original budget for FY 2024–25, the government had planned to borrow BDT 1.37 trillion from the banking sector. However, in the revised budget, this target was reduced to BDT 990 billion. In the first nine months of the fiscal year, the government has already borrowed BDT 852.98 brillion from the banking sector.
Dr. Zahid Hussain, former Lead Economist at the World Bank’s Dhaka office, told Bonik Barta, “If this bank borrowing were being used in productive and public welfare-oriented sectors, then there would have been no problem. But whether it’s the quality or scope of public services or the efficiency of public investment—there’s hardly any visible improvement. Instead, the government has had to borrow just to repay previous loans. On one hand, the government is borrowing from banks, which has driven interest rates higher. On the other hand, government revenue has declined. So the question remains: where exactly is this borrowed money being spent?”
The government has also planned to borrow from banks in the upcoming fiscal year, although the projected amount is slightly lower than in the current year’s budget. In the proposed FY 2025–26 budget, the government has set a target of borrowing BDT 1.04 trillion from the banking system.
Dr. Zahid Hussain said, “If private sector investment picks up in the future, the demand for bank loans will naturally rise. And if private sector demand for loans increases, naturally the government will have to reduce its own borrowing from banks. To do that, either the budget deficit has to shrink, or foreign borrowing must increase, or government spending needs to be cut. Moreover, there must be a strategy in place to ensure that the government’s loan demands do not hinder the recovery of the private sector. But I don’t see any such plan in place.”