A silent revolution in government debt

The government is shifting its reliance away from foreign debt and leaning towards domestic financing, particularly through Treasury Bonds. Against the backdrop of global economic uncertainty, dollar pressure, and the rising costs of servicing foreign debt, this change in debt management is being implemented.

Statistics reveal that over the past four years, the use of Treasury Bonds has increased significantly, while the pace of foreign borrowing has relatively slowed. This picture emerges from an analysis of the Finance Division's debt report.

A senior official of the Finance Division, involved in this process, said that the government's pattern of borrowing is changing. The reliance on foreign debt to finance the budget that once existed is now being replaced by domestic debt, especially Treasury Bonds. This represents a significant shift in the government's financing strategy. However, economists believe this strategy carries risks of creating new pressure on private sector credit flow and interest expenditure.

When asked, former Senior Finance Secretary Mahbub Ahmed said if a large portion of domestic debt is sourced from commercial banks, there is a risk of credit flow to the private sector being squeezed. This could negatively impact private investment, industrial expansion, and employment. Additionally, as the interest rates on domestic debt are higher than those on foreign debt, the government's interest expenditure could also increase. In his view, this strategy will only succeed if the government can simultaneously boost revenue collection and keep the budget deficit under control.

Major Shift in Government Debt Strategy: From June 2022 to March 2026, the government's total debt increased from Tk 13.45 lakh crore to Tk 22.59 lakh crore. Analyzing the nature of this growth reveals that the government is increasing its reliance on domestic sources. Notably, borrowing through Treasury Bonds and Savings Instruments (SPTBs) has nearly doubled, rising from Tk 3.25 lakh crore to Tk 6.28 lakh crore.

Meanwhile, the government's total debt from the banking sector also increased from Tk 4.21 lakh crore to Tk 8.82 lakh crore.

During the same period, foreign debt increased from Tk 4.96 lakh crore to Tk 9.64 lakh crore, but its growth rate was lower compared to domestic debt. While the World Bank (IDA), ADB, and Japan remain the primary lenders, the government has adopted a cautious stance on taking on new foreign loans.

Regarding debt, the Finance Division report states that this altered financing structure is consistent with the long-term debt management strategy. The government's goals include deepening and making the government securities market more effective, increasing the average maturity of debt, and reducing reliance on short-term, comparatively expensive financing.
It also states that increasing the share of domestic debt based on government securities will reduce foreign exchange rate risk. Amidst the current global economic uncertainty and dollar pressure, this strategy will help make the government's debt management more stable and sustainable. At the same time, it will deepen the domestic bond market, paving the way for a more planned and predictable government financing system in the future.

The Finance Division report analyzes the government's borrowing situation for the nine months from July to March of the 2025-26 fiscal year. It shows that the government borrowed a total of Tk 1,15,067 crore to meet the budget deficit. This is approximately 59 percent of the revised budget target of Tk 1,95,000 crore for deficit financing. Compared to the same period of the previous fiscal year, borrowing increased by 13 percent, when it stood at Tk 1,02,214 crore.

The priority given to long-term debt instruments in domestic debt management is clearly reflected in the statistics for fund collection through Treasury Bonds and Sukuk. Through these two instruments, the government raised Tk 70,951 crore. In contrast, instead of taking on new loans through short-term Treasury Bills, a net repayment of Tk 46 crore was made. Similarly, due to net repayments of Tk 2,690 crore in National Savings Certificates and Tk 3,446 crore from the General Provident Fund (GPF), non-market-based debt fell into negative territory, reaching Tk -6,136 crore.

On the other hand, financing from foreign sources has decreased significantly. During the July-March period, foreign loans amounted to Tk 14,544 crore, which is only 25 percent of the revised target. Compared to the same period of the previous fiscal year, foreign financing dropped by 53 percent. As a result, the government had to rely more heavily on the domestic market, particularly Treasury Bonds and other marketable government securities, to meet its funding needs.

Meanwhile, due to increased borrowing through Treasury Bonds, most private banks in the country are investing a large portion of their capital in this sector. An analysis of the banks' financial statements reveals that this trend is evident in 86 percent of listed banks, where income from investments in government Treasury Bills, Treasury Bonds, Prize Bonds, and various securities has become the main driver of earnings, surpassing income from their core business operations.

Sources in the Finance Division indicate that, in addition to government bonds, the government is planning to issue Sukuk bonds against major infrastructure projects in the country, including the Padma Bridge, as an alternative source to foreign debt. Additionally, the government has initiated the process of issuing bonds in the international arena. According to those concerned, the government is increasingly focusing on bonds as an alternative to loans for future financing. This is expected to gradually ease the pressure on the banking sector as well.