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After the February 12 election, higher fuel import costs linked to the war in the Middle East and the implementation of BNP’s election pledges kept the borrowing flow elevated.

Meanwhile, revenue mobilisation has remained weak, compounding fiscal pressures.

Finance and Planning Minister Amir Khosru Mahmud Chowdhury described the war as a major problem for Bangladesh.

“Because of the war, we [the government] are having to incur additional expenditure. We are being forced to purchase fuel at higher prices,” he told reporters after a meeting on Wednesday.

With the annual borrowing target nearly exhausted in nine months, fiscal pressures are clearly front-loaded, said Ashikur Rahman, principal economist at the Policy Research Institute of Bangladesh.

“More concerning, however, is the increasing reliance on financing from the central bank. Borrowing from the central bank is inherently risky as it involves the creation of high-powered money.”

At a time of persistently high inflation, this form of deficit financing undermines contractionary monetary policy, he said.

“This reflects a deeper structural issue: the central bank is increasingly surrendering to fiscal dominance. As a result, monetary policy risks becoming subordinate to fiscal compulsions, undermining its credibility and effectiveness,” Rahman said.

He also said that the government’s borrowing pattern this fiscal year reveals a growing inconsistency at the heart of Bangladesh’s macroeconomic management.

Reaz pointed out another risk of large government borrowing from the banking system: it can create a crowding-out effect on the private sector, meaning private businesses may struggle to access loans. However, this risk is currently low because demand for credit is weak.

Private sector credit growth hit a decade-low of 6.03 percent in January.

While explaining the reason for high bank borrowing, Reaz said the government’s weak revenue collection has been a persistent problem.

In the first eight months of the fiscal year, the National Board of Revenue fell short of its collection target by 28 percent, leaving a gap of Tk 71,472 crore, according to provisional data.

In addition, the government’s operating expenditure has multiplied over the past few years, while spending on mega projects has also increased, pushing up borrowing needs, Reaz said.

He suggested exploring alternative sources of revenue and borrowing, and developing the bond market.