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Government domestic borrowing dropped by nearly half in the first five months of FY26, reflecting a combination of slow development spending, cautious investor sentiment, and diminishing interest from banks due to lower treasury returns.

Between 30 June and 24 November, net borrowing from both banking and non-banking sources stood at Tk11,700 crore—down 48% from Tk22,251 crore during the same period last year, according to Bangladesh Bank data. The decline comes even as total domestic debt continues to rise, reaching Tk5.62 lakh crore by 24 November.

Non-bank sources dominate borrowing

Most of the government’s borrowing during the period—Tk10,315 crore—originated from non-bank sources such as insurance companies, non-bank financial institutions (NBFIs), corporate investors, and individuals. Borrowing from the central bank totalled Tk1,993 crore, though the government repaid Tk900 crore just a month earlier.

Officials say the government is leaning more on non-bank institutions because its immediate financing needs are low and because non-banks are consistently submitting bids at lower rates in treasury auctions. Large corporates including Grameenphone and bKash, along with major provident funds, have stepped up investment in T-bills and bonds.

Last fiscal year, treasury bill and bond rates hovered above 12%, prompting banks to invest heavily. This year, yields have softened to just above 10%, weakening banks’ appetite.

Slow ADP spending curbs loan demand

Another major reason behind the sharp decline in borrowing is sluggish development spending. The Annual Development Programme (ADP) for FY26 targets Tk2.38 lakh crore in expenditure, but only Tk19,578 crore—just 8.33% of the yearly allocation—was spent in the first five months.

Bankers say this slowdown has rippled through the private sector. With fewer government-funded infrastructure activities underway, businesses are importing less equipment and raw materials. This, in turn, reduces demand for commercial loans.

One banker explained, “When government development spending falls, private-sector activity cools. Lower imports mean businesses require fewer loans.”

Borrowing expected to rise after elections

A senior Bangladesh Bank official said government borrowing will likely increase after the February election, once a new administration begins pushing forward mega projects.

Private-sector credit growth hits four-year low

The weakness extends beyond government borrowing. Private-sector credit growth fell to its lowest level in four years in October, sliding to 6.23%—down from 6.29% in September and well below 8.30% a year ago.

Economists warn that the sustained slump signals deeper economic challenges.

One former World Bank economist noted that new investments have been weak since August last year. “When investment stalls, imports of capital machinery fall and loan demand collapses. There is no indication yet of a recovery.”

Although earlier fraudulent loan practices have reduced and the foreign currency shortage has eased, new constraints have emerged. Energy shortages—particularly a lack of gas—are hampering factory operations, further suppressing investment appetite.

NRBC Bank’s managing director said political uncertainty has also made investors cautious, delaying major business decisions. On the supply side, banks themselves have become more selective amid broader economic pressures.

A cautious start to FY26

With government borrowing at just 11.25% of its annual target of Tk1.04 lakh crore, and private-sector credit stuck in a prolonged slowdown, the early months of FY26 present a picture of subdued economic momentum.

Whether a post-election rebound materialises will depend on political stability, energy supply improvements, and the government’s ability to accelerate development spending—factors that together will determine the pace of both public and private credit growth in the months ahead.