The government is increasing borrowing from the banking sector to finance additional salary payments for public servants under the new pay structure, adding to its financial pressure. Bangladesh Bank has arranged an auction of special 14-day Treasury bills on Wednesday (October 28) to raise another Tk 5,000 crore.
The government is scheduled to pay public servants their October salaries along with three months of arrears on November 1. The additional expenditure has prompted the government to seek short-term financing from banks.
The government generally borrows through 91-day, 182-day and 364-day Treasury bills. However, it issues special 14-day bills to meet temporary funding shortfalls when revenue collection falls short of regular expenditure. The latest auction is being arranged to cover the additional salary costs under the new pay scale.
According to Bangladesh Bank data, the government had raised Tk 55,300 crore through Treasury bills and bonds up to Tuesday in October. If the latest auction raises another Tk 5,000 crore, total borrowing through these instruments during the month will reach Tk 60,300 crore, the highest monthly amount since the current government took office.
The government borrowed Tk 56,000 crore through Treasury bills and bonds in July of the current fiscal year 2026-27, followed by Tk 50,000 crore in August and Tk 41,500 crore in September.
However, the total amount raised through these auctions does not represent entirely new or net borrowing, as a significant portion is used to repay maturing bills and bonds or refinance existing liabilities.
Bangladesh Bank data show that the government’s net borrowing from the banking sector stood at Tk 24,245 crore during July-September. Of this, Tk 23,227 crore came from commercial banks and around Tk 1,017 crore from the central bank.
Meanwhile, yields on Treasury bills and bonds have risen alongside the government’s growing borrowing requirements. The yield on 91-day Treasury bills increased to 8.55% on October 26 from 8.13% on October 5. Yields on other maturities have also increased.
The rise in government borrowing costs comes despite substantial excess liquidity in the banking sector. Excess liquidity in banks stood at Tk 4.42 lakh crore at the end of August, the highest on record, with part of the funds remaining uninvested.
Bangladesh Bank Executive Director and spokesperson Arif Hossain Khan said the government’s growing financing needs had necessitated special Treasury bills and additional bond issuance alongside regular auctions. He attributed the increased borrowing largely to revenue collection falling short of expectations.
He added that the central bank was planning substantial issuance of Shariah-compliant Sukuk, targeting Tk 32,000 crore in the current fiscal year. Such instruments could provide long-term financing and help reduce the government’s dependence on the banking sector.
The government’s budget for FY27 stands at Tk 9.38 lakh crore, with a projected deficit of Tk 2.43 lakh crore. The government plans to finance the deficit through domestic and foreign borrowing, including a targeted Tk 1.12 lakh crore from the domestic banking sector.
In FY26, government borrowing from the banking sector reached a record Tk 1,34,571 crore, exceeding the revised target of Tk 1.18 lakh crore. Analysts fear the implementation of the new pay structure could further increase the government’s reliance on bank loans this fiscal year.
Weak revenue collection is also contributing to the borrowing pressure. The National Board of Revenue has been assigned a collection target of Tk 6.04 lakh crore for FY27, but the revenue shortfall reached Tk 25,491 crore in July and August. Collections also reportedly fell short of expectations in September and October, increasing the need for bank borrowing to meet regular expenditure.
By October 27, the government had raised Tk 20,000 crore through four auctions of 91-day Treasury bills, Tk 12,000 crore through four auctions of 182-day bills and Tk 8,000 crore through 364-day bills. Total borrowing through Treasury bills during the period stood at Tk 40,000 crore.
The government also raised Tk 15,300 crore through Treasury bonds with maturities ranging from two to 20 years. On Tuesday, it borrowed Tk 2,500 crore through 15-year and 20-year bonds, both carrying yields of 9.38%.
Former finance secretary and former comptroller and auditor general Mohammad Muslim Chowdhury described the decision to issue short-term special Treasury bills to finance public salaries as a matter of economic concern. He said revenue collection was not growing as expected while expenditure, including salaries under the new pay scale, was increasing. Continued spending on major projects could further raise borrowing pressures and constrain financing for the private sector.
Bangladesh Bank data show that government borrowing from the banking sector grew by more than 34.5% in FY26, while private-sector credit growth fell to 4.47%, the lowest on record.
According to the Finance Division’s latest projections, the government’s outstanding debt could reach around Tk 34 lakh crore by FY29 if the current borrowing trend continues.
Former World Bank Dhaka office chief economist Dr Zahid Hossain said the government had entered a cycle of borrowing to repay existing debt. Weak revenue collection was forcing it to borrow more than budgeted, while maturing Treasury bills and bonds were increasingly being rolled over rather than repaid outright.
Bangladesh has approximately 2.4 million civilian and defence public servants, in addition to around 925,000 pensioners. The FY27 budget allocates Tk 1,31,284 crore for government employees’ salaries, allowances and pensions, including Tk 1,06,292 crore for salaries alone.
Under the new pay structure, the minimum basic salary has been raised from Tk 8,250 to Tk 20,000, while the maximum has increased from Tk 78,000 to Tk 1,56,000. The new salary and allowance structure will be implemented in phases.
The government’s annual expenditure is expected to increase by around Tk 1.05 lakh crore once the ninth pay scale is fully implemented.
