Bangladesh’s revised 2025–26 budget pegs the banking sector’s share of domestic deficit financing at more than 85 percent. That reliance will climb further over the next three fiscal years, averaging nearly 87 percent, according to the Medium-Term Macroeconomic Policy Statement (2026–27 to 2028–29) tabled in parliament on June 11 alongside the proposed 2026–27 budget.
Governments elsewhere plug budget shortfalls with a mix of domestic sources: bond markets, national savings schemes, bank credit, pension funds, insurance companies and other institutional investors. The United States, the United Kingdom and neighbouring India have all built deep investment ecosystems around sovereign bonds, drawing in pension funds, mutual funds, private equity, retail investors and foreign governments. South Korea and Malaysia have similarly diversified their government bond markets. Bangladesh, by contrast, is forced to rely overwhelmingly on its banks.
The finance division projects that the banking sector will supply more than 88 percent of net domestic deficit financing in the 2026–27 fiscal year. Net domestic borrowing is targeted at BDT 1.27 trillion, of which BDT 1.12 trillion will come as bank loans.
In FY 2027–28, the government expects net domestic financing of BDT 1.47 trillion, with banks providing BDT 1.26 trillion, or 85.73 percent of the total. By FY 2028–29, domestic borrowing from banks will edge up to 86.41 percent: out of BDT 1.84 trillion in domestic deficit funding, the government will borrow BDT 1.59 trillion from banks.
Only a few years ago, the government raised large sums through savings certificates alongside bonds. But net sales of savings certificates — new issues minus principal repayments — have remained negative for nearly four fiscal years. That collapse has driven the government into heavier reliance on banks when issuing treasury bills and bonds on the domestic market.
The pattern is not new. In the 2024–25 fiscal year, the government borrowed BDT 1.34 trillion from domestic sources to cover the deficit; banks supplied BDT 1.14 trillion, or nearly 84.72 percent of the total. The current fiscal year’s revised budget raises that share to 85.22 percent, targeting BDT 1.34 trillion in domestic financing, with BDT 1.14 trillion earmarked from banks. Economists say the actual take is likely to overshoot both targets.
Experts say Bangladesh has failed to build a deep, diversified bond market, leaving the banking system as the government’s default financier. Savings certificates, once a reliable tap, have lost their pull because the interest they offer trails deposit rates. The result is that banks channel the bulk of their investable funds into government paper. The state has become the prime borrower, starving the private sector of credit and suppressing investment.
That dynamic, Dr Fahmida Khatun argues, is incompatible with the budget’s core aim. “On one hand, the budget stresses boosting private investment. On the other, reliance on banks for deficit financing isn’t falling,” the executive director of the Centre for Policy Dialogue told Bonik Barta. “If the government drains this much from the banks, the private sector gets squeezed. Liquidity will tighten. We’re already running a contractionary monetary policy. Another liquidity shock would push bank interest rates even higher, further driving up the cost of doing business.”
The entire deficit model, she said, needs revisiting. “The external borrowing target has been raised, but whether that money materialises is an open question. Foreign lenders look at spending transparency. We can’t spend even the funds we take. Implementation often falls short. There are procurement bottlenecks and administrative weaknesses. So loan targets are never fully met, and pipeline disbursements stall. The global financing landscape has shifted. Development partners now impose various conditions; we have to meet them. We need to fix our credit rating, climb out of the negative outlook Fitch and S&P have put us under. The deficit model in this budget needs a rethink.”
Government domestic debt stock has already surpassed BDT 11 trillion, Bangladesh Bank data through February show. The government’s outstanding debt to the banking sector has risen to more than BDT 6.2 trillion.
Bankers identify the relentless decline in net savings-certificate sales as the primary driver of this dependence. Net sales have stayed negative for nearly four fiscal years: the government now pays out more in principal redemptions to existing holders than it raises from new certificates.
As recently as FY 2021–22, savings certificates still made a material contribution to deficit financing, yielding net receipts of nearly BDT 200 billion. That dynamic shifted in the following year. In FY 2022–23, the government sold BDT 808.58 billion in new certificates but had to repay BDT 841.54 billion in principal alone, pushing net sales to a negative BDT 32.95 billion. The drain widened sharply the next year: redemptions of BDT 999.72 billion overwhelmed sales of BDT 788.47 billion, a net outflow of BDT 211.24 billion. In FY 2024–25, sales of BDT 684.39 billion met repayments of BDT 745.02 billion, yielding a net deficit of BDT 60.63 billion.
The first nine months of the current 2025–26 fiscal year have brought little relief. Net sales stand at a negative BDT 26.89 billion during the July to March period, as BDT 678.47 billion in new sales failed to keep pace with BDT 705.37 billion in principal repayments. The gap forces the government to borrow ever more from the banks.
Mosleh Uddin Ahmed, managing director of Shahjalal Islami Bank PLC, warns that the government’s over-reliance on bank credit is pushing the private sector into an increasingly precarious position. “The government is borrowing more from banks than the budget target. And the interest rate on that borrowing is extremely high,” he told Bonik Barta. “Most banks now see lending to the government as the safe play. Credit flow to the private sector has slowed to a crawl — growth has dropped to just 4 percent. The economy can’t gain momentum like this.”
Ahmed attributes the collapse in savings certificates to the interest rate gap. “Deposit rates at banks are now higher. If bank deposits pay more than savings certificates, why would anyone buy the certificates?” The government, he argues, must tap alternative funding sources. “For large infrastructure projects, it could issue long-term bonds. Had the government financed the Elevated Expressway or the Padma Bridge through bonds listed on the capital market, that market would be vibrant today and the government’s reliance on the banking sector would have also been lower.”