Government debt in Bangladesh consists of domestic and external debt. External Debt is directly linked to borrowing from bilateral and multilateral institutions for project funding through the Annual Development Programme and budget support systems. Domestic borrowing is generated for financing segments of the budget deficit in addition to intra-year cash flow management. In general, external borrowing is applied to long term commitments while domestic borrowing is required for short, medium and long term commitments.
The domestic resources are always considered as key source of the government for deficit financing. In recent times, the government finances the lion’s share of the deficit from the domestic source especially from the banks. Total domestic financing has been showing an increasing trend since FY 2009-10 because of increase in deficit. Domestic borrowing in FY 2009-10 was Tk.78980.14 crore and became Tk. 20760.61 crore in FY 2012-13 and Tk.20859 crore in FY 2013-14. The budgetary target set for FY 2014-15 is Tk.43277 crore.
The government borrows from two domestic sources: banking system and the non- banking system, while the borrowing from banking sector is decreasing in recent times. In FY 2013- 14, government borrowed Tk. 6705 crore (till Feb’14) where the amount was Tk. 17873 crore and Tk. 18875 crore in FY 2012-13 and FY 2011-12 respectively; showing a 5.31 percent decrease in net borrowing from the banking system from the period of FY 2011-12 to FY 2012-13. The banking system is the main source of borrowing, although the dependency on non –bank system, specially the borrowing through National Savings Deposit (NSD) is increasing. The net borrowing from the non-bank source was Tk.12056 crore (till Feb’14). In FY 2012-13, the borrowing was Tk. 14153 crore which was Tk. 2887.71 crore in FY 2011- 12, showing a 390.11 percent increase within a fiscal year. In FY 2012-13, the total net borrowing from the banking system was Tk. 17873 crore which stood at Tk. 6705.9 crore in FY 2013-14(a 62.5 percent decrease). Outstanding of debt was Tk. 45181.8 crore in FY 2001-02 which reached at 78470.4 crore in FY 2006-07 at an annual rate of growth of 14.74 percent. From FY 2006-07 to FY 2008-09, domestic debt increased at an annual rate of 19.42 percent and since the last six years, i.e. from FY 2008-09 to FY 2013-14, domestic debt increased at an annual rate of 17.09 percent. In FY 2011-12, debt stood at Tk. 160423 crore, then increased to Tk. 181183.96 crore (17.46 percent as a share of GDP) in 2012-13 and Tk. 202043.80 crore (17.11 percent as a share of GDP) in FY 2013-14 . If this trend continues, outstanding domestic debt will be Tk. 260498.44 crore in FY 2014-15 and Tk. 318953.08 crore in FY 2015-16.