TDS Desk:

Revenue income alone cannot fully cover operating and development spending of the country. This prompts government to borrow each year from domestic and foreign sources, with a large share of domestic borrowing coming through treasury bills. With treasury bill’s interest rate rising in recent months, the government’s costs have increased. To rein in spending, it is now turning to Shariah-compliant treasury bills.

The finance division wants to issue short-term Islamic treasury bills worth BDT 200 billion within the current fiscal year. To build technical capacity for the new instrument, eight officials from the finance division and Bangladesh Bank will travel to Bahrain next week for training.

Officials said the proposal was discussed at a recent meeting of the finance division’s Cash and Debt Management Committee. Interest rates on 91-day, 182-day, and 364-day conventional treasury bills are above 10 percent, with a weighted average of 10.27 percent. By contrast, the average rental rate on short-term sukuk stands at about 9 percent. That implies Islamic treasury bills would cost around 1.20 percentage points less than conventional bills.

The committee examined the option of reducing outstanding borrowing through conventional treasury bills and replacing an equivalent amount with short-term Islamic bills or sukuk. Finance ministry officials estimate that issuing BDT 200 billion in Islamic treasury bills at a 9 percent rental rate could save the government about BDT 2.4 billion a year. On that basis, the committee gave preliminary approval to issuing Islamic treasury bills of that size during the current fiscal year.

According to finance division data, interest payments accounted for 28 percent of government operating expenditure in the previous FY 2024–25. Total interest payments that year reached BDT 1.34 trillion. Of this, BDT 1.16 trillion went to domestic debt servicing and BDT 178.12 billion to foreign debt. Back in FY 2023–24, interest payments totalled BDT 1.14 trillion, including BDT 996.06 billion on domestic borrowing and BDT 149.84 billion on foreign loans. For the current FY 2025–26, the budget has allocated BDT 1.22 trillion for interest payments.

Mahbub Ahmed, a former senior secretary of the finance division, said Shariah-compliant treasury bills were likely to find buyers. He told journalists, “Shariah-based banking has been approved in Bangladesh and its popularity is growing. Islamic treasury bills should therefore sell well. They would diversify financial products and expand investment options for Islamic banks.”

He noted that Shariah-based banks cannot invest in conventional treasury bills or bonds, adding, “If Islamic treasury bills are issued, those banks will be able to buy them. Individual investors who prefer Shariah-compliant products would also be interested.”

During the previous fiscal year, the government borrowed BDT 3.81 trillion through treasury bills and repaid BDT 3.39 trillion over the same period. Net borrowing from treasury bills stood at BDT 416.85 billion. By the end of June 2025, total outstanding treasury bill borrowing had reached roughly BDT 1.75 trillion. Overall, the government borrowed BDT 1.83 trillion from domestic and foreign sources last fiscal year, including BDT 1.25 trillion domestically and BDT 573.49 billion externally. Total borrowing in FY 2023–24, meanwhile, amounted to BDT 1.96 trillion.

Shariah-compliant financial products remain limited in Bangladesh despite the sector having large markets in many other countries. The main Shariah-based product in the country is deposits held with Islamic banks, leaving a gap in experience with other Islamic finance instruments. To address this, the government is sending four finance division officials and four central bank officials to the Bahrain Institute of Banking and Finance for a five-day course, with training running from December 21 to 25.

One of the participants is Istequemal Hussain, director of the Debt Management Department at Bangladesh Bank. Speaking to journalists, he said, “Six sukuk have been issued so far, each attracting five to six times oversubscription. After one sukuk is issued, it often takes nearly a year to launch the next because suitable underlying assets are not available. During that period, investors who want Shariah-compliant products have no options, and the government cannot meet that demand. To address the gap, we are planning to issue Islamic treasury bills with maturities of 91 days, 182 days, and 364 days.”

“We lack technical expertise in this area,” Hussain added. “That’s why we are going to Bahrain to learn about the issuance process and related matters. After returning, our target is to issue an Islamic treasury bill during the next Ramadan.”