The government borrowed BDT 560 billion from the banking sector through treasury bills and bonds in July, the first month of the 2026–27 fiscal year, to cover operating costs and development spending, according to Bangladesh Bank data.

It repaid BDT 485 billion in existing debt during the month, leaving net bank borrowing at BDT 75 billion.

Most of the borrowing came through treasury bills. Four auctions raised BDT 440 billion in July 2026, BDT 60 billion, or 15.79 percent, more than in June, according to the central bank’s latest monthly Money Market Dynamics report. Treasury bills, which mature in 91, 182 or 364 days, are the government’s main source of short-term borrowing. Of the BDT 440 billion raised, BDT 390 billion went towards maturing bills, leaving net short-term borrowing of BDT 50 billion.

Analysis of Bangladesh Bank’s Treasury bond auction data shows that the government held three auctions in July for bonds with maturities of two to 20 years, raising BDT 120 billion. The government repaid BDT 95 billion in maturing bonds during the month, leaving net borrowing of BDT 25 billion through Treasury bonds.

Economists and bankers say the figures point to continued reliance on domestic debt to meet the government’s financing needs. They say the government fell into a debt trap five to seven years ago and now borrows largely to meet existing debt obligations. Without stronger revenue collection, they warn, the domestic debt burden will grow as foreign loan repayments increase.

Bangladesh Bank Executive Director and Spokesperson Arif Hossain Khan told Bonik Barta: “The central bank’s responsibility is to provide the government with financing through Treasury bills and bonds to meet its borrowing needs. We are simply carrying out that responsibility. It’s up to the government to decide how the debt will be repaid.”

Khan added that weak revenue collection was driving the government’s reliance on borrowing, even as it continued to fund large development projects. “There is little prospect of government debt falling under such circumstances. It is only natural that this debt will increase over time,” he said.

Central bank figures show that yields on treasury bills and bonds increased across all maturities in July. The yield on 91-day bills rose from 9.33 percent on July 5 to 9.79 percent on July 26, with the four auctions raising BDT 200 billion. Over the same period, the yield on 182-day bills rose from 9.57 percent to 9.99 percent. The yield on 364-day bills reached 10.09 percent in the final week of July 2026.

The government sets an annual bank borrowing target in its budget to finance the deficit. For FY 2025–26, it initially set the target at BDT 1.04 trillion before raising it to BDT 1.18 trillion. Actual borrowing still exceeded the revised target. For FY 2026–27, the target is BDT 1.12 trillion.

That borrowing is coming as private sector credit remains weak. Government borrowing from banks rose by more than 34.5 percent last fiscal year, according to central bank data, while private sector credit growth fell to a record low of 4.47 percent. The squeeze has since deepened. The central bank responded with a BDT 600 billion stimulus package, but implementation has yet to begin.

The government’s heavy reliance on bank borrowing is putting further pressure on businesses, said former Finance Secretary and former Comptroller and Auditor General Mohammad Muslim Chowdhury.

“Government spending far exceeds its earning capacity, forcing it to borrow from banks beyond its announced target. Because interest rates on treasury bills and bonds are high, the cost of servicing this debt is also escalating. There’s no visible, effective effort to cut spending or raise revenue,” Chowdhury told Bonik Barta.

He added: “The private sector has been struggling for several years. Entrepreneurs either can’t secure bank loans or see insufficient demand to borrow and expand businesses. Interest rates also remain high. Revitalising the private sector is essential to generate employment and reboot the economy. So there’s no alternative to increasing credit flow to the private sector.”

The government’s dependence on borrowing has built up over years. During the 15 years the Awami League was in power under now-deposed Prime Minister Sheikh Hasina, it borrowed about BDT 16 trillion between 2009 and 2024.

Finance Ministry data show that total public debt stood at BDT 2.76 trillion when Hasina took office in 2009. By July 2024, it had risen to nearly BDT 19 trillion. When the BNP-led government took office in February 2026, public debt stood at roughly BDT 23 trillion.

Pressure on the public finances has since increased further. US-Israeli strikes on Iran have kept the Middle East embroiled in conflict for five months, doubling global oil and gas prices and pushing up Bangladesh’s energy import bill. Import expenditure jumped by more than 71 percent in June 2026 to $7.51 billion, from $4.39 billion in June 2024, according to central bank figures. Officials attributed the increase directly to the doubling of energy import costs.

The higher energy bill has added to the government’s reliance on borrowing, while revenue collection has continued to fall short of target amid an economic slowdown. The revenue shortfall was about BDT 880 billion in FY 2025–26. The National Board of Revenue has not published fresh revenue data since June 2026.

The government is also preparing to implement Pay Commission recommendations that would raise public sector salaries. The move would add BDT 1.06 trillion to spending and, economists warn, force the government to rely even more heavily on bank borrowing.

The resulting debt trajectory is steep. Finance Division projections show that if current trends continue, total public debt could reach nearly BDT 34 trillion by FY 2028–29. The medium-term macroeconomic policy statement says debt will rise to levels that put severe pressure on the wider economy, particularly private sector expansion and foreign exchange reserves.

The Finance Division estimates that total public debt will reach BDT 26.33 trillion by the end of FY 2026–27, rise to BDT 29.56 trillion the following year and reach BDT 33.77 trillion by the end of FY 2028–29.

Domestic borrowing will account for BDT 18.8 trillion of the final total, while external debt will make up the remaining BDT 14.97 trillion.

As the debt stock grows, so will the cost of servicing it. Annual interest payments are projected to reach BDT 1.27 trillion in FY 2026–27 and BDT 1.62 trillion by FY 2028–29. Debt service will take an increasing share of the national budget, threatening to crowd out capital spending. The government’s heavy reliance on the banking sector for domestic borrowing could also further squeeze credit available to the private sector.

That squeeze is already changing how banks deploy their funds. The slowdown in private sector activity is leaving commercial lenders with more liquidity to invest in government securities, said Mashrur Arefin, chairman of the Association of Bankers, Bangladesh (ABB) and managing director of City Bank PLC.

Arefin told Bonik Barta: “The private sector was already under pressure, and the ongoing gas and electricity crisis has added further burden. Because of the prolonged strain, even sound entrepreneurs are now at risk of default. Banks are now assessing how high non-performing loans could rise.”

“With muted private sector credit demand, banks have redirected liquidity into treasury bills and bonds, making it easy for the government to borrow,” he added. “But reallocating capital into government securities at the expense of commercial lending bodes ill for broader economic recovery and job creation.”