Govt plans to borrow Tk30,107cr through treasury bills, bonds in October-December

The government plans to borrow a net Tk30,107 crore from the banking sector through treasury bills and bonds in the October-December quarter of the current fiscal year, according to the latest auction calendar released by Bangladesh Bank.

The planned borrowing is lower than the more than Tk35,000 crore in net borrowing targeted through government securities in the previous July-September quarter.

The increased borrowing comes amid a shortfall in government revenue collection and rising expenditure pressures, including the implementation of the new pay scale for government employees.

According to NBR data, the government collected Tk29,000 crore less than its revenue target during the current fiscal year, with collection also 5.25% lower than in the corresponding period of the previous fiscal year.

The government's expenditure requirements are also expected to rise following the implementation of the new pay structure for public servants. The basic salaries under the new structure will be implemented in three phases – in July this year, December and July next year – while employees will receive all allowances under the new structure from January 2028.

The new pay structure is expected to add Tk1,05,380 crore to government expenditure over three years, including an additional Tk37,372 crore in December 2026.

Economists said the government's increased reliance on bank borrowing could raise interest expenditure and put additional pressure on revenue collection.

Fahmida Khatun, distinguished fellow at the Centre for Policy Dialogue, said the borrowing indicated pressure on the government's liquidity position.

"The government is borrowing from the banking sector, which indicates that there is a liquidity shortage in the government's coffers. However, increasing borrowing from banks is not a sustainable method," she said.

"The government will have to repay the money it is borrowing. So, it remains to be seen where the government will get the money to repay these loans," she added.

She said increased government borrowing could eventually affect private-sector credit.

"When demand for loans increases, it may affect the private sector. At present, liquidity in banks is in a good position. However, if borrowing continues to increase gradually, it will have an impact on the banking sector," she said.

Md Ezazul Islam, director general of the Bangladesh Institute of Bank Management (BIBM), said the government needs additional funds to implement the new pay scale.

"The government is borrowing from banks to finance the additional expenditure, which will increase interest payments in the budget. The government will then have to put greater emphasis on revenue collection," he said.

A banker, speaking on condition of anonymity, told The Business Standard the increased government borrowing was unlikely to have a significant immediate impact on private-sector credit as demand for loans remained weak.

He said many commercial banks currently have adequate liquidity. "However, continued government borrowing could affect private-sector lending if demand for credit picks up."

He also said the government would need to reduce its reliance on bank borrowing over time.