The government's borrowing from domestic sources surged in the first half of FY25, primarily driven by a substantial increase in the issuance of special bonds, particularly those issued to clear arrears to electricity and fertiliser producers, as well as treasury bills (T-bills) and bonds targeting institutional and individual investors.

Net borrowing from domestic sources in the first six months of the current fiscal year stood at around Tk 31,432 crore, about 69 times higher than the Tk 456 crore recorded in the same period of the preceding year, according to a Bangladesh Bank report released yesterday.

This is about 27 percent of the government's total revised borrowing target of Tk 117,000 crore from domestic sources.

"Despite higher repayments of previous debts, government borrowing from the domestic banking system in the six months showed positive growth compared to the same period of the preceding year, owing to increased financing through government securities," the BB report stated.

Borrowing from non-banking sources saw a sharp rise in the first half of FY25, contributing Tk 24,688.2 crore to overall domestic borrowing, compared to Tk 7,089 crore in the same period of FY24

"Net non-bank borrowing also showed a significant year-on-year rise during the same period, primarily due to substantial holdings of government securities by various institutions and individuals outside the banking sector."

The government's net borrowing from the banking system reached Tk 6,744 crore, approximately 6.8 percent of the revised borrowing target for FY25, which stands at Tk 99,000 crore.

However, the government did not borrow from the Bangladesh Bank. Instead, it repaid Tk 58,116 crore to the central bank during the first half of the fiscal year.

Conversely, borrowing from scheduled banks amounted to Tk 64,186.1 crore, contributing to the overall increase in borrowing from the banking system.

These moves are designed to control persistent inflation, which has hovered above nine percent since March 2023.

The government also repaid Tk 12,542 crore for outstanding fertiliser and electricity bills through the issuance of special bonds. In the last fiscal year, the government had repaid Tk 36,586 crore for the same purpose.

However, borrowing from non-banking sources witnessed a sharp increase, contributing Tk 24,688.2 crore to overall domestic borrowing, compared to Tk 7,089 crore during the same period last fiscal year.

Typically, the government borrows from non-bank sources through the issuance of savings instruments. However, in recent years, repayments have exceeded sales of savings instruments, leading to negative net borrowing from this system.

During the first six months of the current fiscal year, net borrowing from savings instruments stood at a negative Tk 2,244 crore, compared to a negative Tk 6,063 crore during the corresponding period last fiscal year.

Notably, non-bank borrowing was driven by the sale of government securities, including special bonds designed for individual investors, which have become an increasingly attractive option for both institutional and private buyers.

In the context of government borrowing from individual sources, treasury bills and treasury bonds have emerged as key instruments, catering to a broad base of investors, ranging from insurance companies to individual savers.

The issuance of these bonds aligns with the government's strategy to diversify its funding sources, particularly from the domestic non-banking sector.

For the government, the shift toward treasury bonds and specialised securities aimed at individual investors presents a dual advantage: it not only provides much-needed liquidity but also taps into the growing interest among citizens in safer investment avenues.

"The rise in borrowing from the non-banking sector underscores the strong demand for government securities," said a central bank official.