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The interim government sharply increased its dependence on bank borrowing in the first seven months of FY26, raising concerns over pressure on private sector credit and interest rates.

Data from Bangladesh Bank show that the government borrowed over Tk 730 billion from the banking system between July and January, accounting for 81 per cent of total loans taken during the period. Overall net borrowing—both domestic and foreign—stood at around Tk 900 billion.

The surge comes as revenue collection lagged behind targets while government spending, particularly on development projects and operational costs, continued to rise.

Economists warn that such heavy borrowing from banks could crowd out private investment at a time when business lending is already sluggish. “Excessive government borrowing limits funds available for the private sector and may push up interest rates,” said an economist.

Central bank officials cited several drivers behind the spike. A major factor was the government’s capital injection—around Tk 200 billion—into a newly formed “Combined Islamic Bank,” financed largely through bank borrowing.

Borrowing patterns have shifted sharply compared to the previous year. Net bank borrowing jumped nearly eightfold to Tk 73,035 crore during July–January, up from Tk 9,442 crore a year earlier. In contrast, borrowing from non-bank sources fell steeply to Tk 7,216 crore.

External financing also weakened. Net foreign borrowing dropped to Tk 9,832 crore—less than 11 per cent of total loans—down significantly from Tk 27,964 crore in the same period last year.

Meanwhile, the country’s total domestic debt stock rose to Tk 10.37 lakh crore by January, increasing by more than Tk 1.51 lakh crore in a year.

With the FY26 budget targeting a deficit of Tk 2.21 lakh crore, analysts stress the need for a more balanced borrowing strategy to avoid straining the financial system and to support long-term economic stability.