Bangladesh government's borrowing from the domestic banking system surged to BDT1.68 trillion ($13.7bn) in fiscal 2025-26, exceeding its revised target by around BDT500bn, as weak revenue collection and higher government spending increased its reliance on bank financing, The Financial Express reported.

The government had initially set a bank-borrowing target of BDT1.04 trillion for FY26 to help finance the budget deficit. However, the target was raised to BDT1.18 trillion midway through the fiscal year after revenue mobilisation fell short of expectations.

According to Bangladesh Bank's monetary survey, government borrowing from the banking sector reached BDT1.68 trillion during FY26, substantially exceeding the revised target.

Central bankers and money-market experts said borrowing pressure intensified in the final quarter of the fiscal year, particularly following the US-Iran crisis, which pushed up gas and fuel-oil prices amid supply-chain disruptions.

The escalation in Middle East tensions also increased the government's subsidy requirements, prompting greater reliance on bank borrowing to finance additional expenditure.

A Bangladesh Bank official said the government's dependence on bank financing increased sharply during FY26, mainly because of a widening revenue shortfall and higher operational spending. He added that borrowing pressure could intensify further as the government prepares to implement a new pay scale for public-sector employees.

Data from the National Board of Revenue showed that it collected BDT4.15 trillion in FY26, falling BDT875.27bn short of the revised target of BDT5.03 trillion.

Meanwhile, the government's LNG import subsidy was significantly higher than initially budgeted. The FY26 budget allocated BDT60bn for the subsidy, but the actual requirement rose to BDT166bn by the end of the fiscal year.

Dr M Masrur Reaz, chairman of Policy Exchange Bangladesh, said the figures point to an urgent need for fiscal consolidation, which has yet to materialise.

He also noted that government borrowing requirements had become increasingly difficult to predict because of uncertainty surrounding revenue collection.

While commercial banks may benefit in the short term from weak private-sector credit growth, Masrur said demand for private-sector financing could recover under the elected government. If private-sector credit growth accelerates while government borrowing from banks remains elevated, he warned that it could lead to a crowding-out effect.

Masrur said the government should make budgetary spending plans more realistic and align expenditure with the country's revenue mobilisation capacity to prevent a persistent mismatch between funding needs and available resources.