Development has stalled, debt pressure is increasing: Doomsday signal for the economy

During the Awami League government, debt increased by an average of about 1 lakh crore taka every year. But in the last one year, debt has increased by 2.5 lakh crore taka.

Staff Correspondent

The Bangladesh government’s debt burden is increasing at an alarming rate amid declining revenue, stagnant private investment, political uncertainty, a weak banking system, and an overall economic slowdown. Despite the slowdown in development activities, expenditure has increased but revenue has not, making the government increasingly dependent on debt to meet its deficit.

The latest debt bulletin of the Finance Department says that government debt has increased by nearly 2.5 lakh crore taka in just one year, which is one of the fastest paces of debt growth in recent times.

At the end of June 2025, the total government debt stood at Tk 21,44,340 crore, which is about 14 percent more than the Tk 18,890 crore a year earlier. Of this, foreign debt is Tk 9,490 crore and domestic debt is about Tk 1,195 crore.

The debt balance has increased by more than 15 lakh 58 thousand crore taka in the one and a half decade of the Awami League government. On average, the debt has increased by about 1 lakh crore taka every year. But despite the slowdown in development projects after the overthrow of the Awami League government, this abnormal increase in debt in the last one year is very inconsistent for experts. However, in the political incitement to overthrow the government, it was claimed that the Awami League government is bankrupting the country with debt! However, the Yunus government has broken all past records with debt.

Private investment has been on a downward trend for many years due to political uncertainty, high interest rates, the dollar crisis, rising import costs, and instability in the banking sector. Various industrial projects have been stalled in the 2024-25 fiscal year due to financing complications. Many factories have reduced production, new job opportunities have not been created in the labor market; on the contrary, layoffs have increased.

According to economists, when the wheel of investment stops, revenue, employment, and production all shrink; as a result, borrowing becomes mandatory for the government.

After the change of government, various project re-evaluations, allocation cuts and suspensions have taken a major hit to development activities. In the 2024-25 fiscal year, the implementation of the ADP fell below 68 percent, the lowest in a decade. Although the implementation in the first four months of the current 2025-26 fiscal year was 8.33 percent, the expenditure has actually decreased—from last year’s 21,978 crore taka to 19,878 crore taka.

The Local Government Department was the most active in terms of allocation (Tk 4,961 crore), while the Health, Education and Family Welfare Department had the least expenditure (Tk 77 crore). According to economists, when development stops, debt does not become a source of future income—rather, it creates long-term liabilities.

Bangladesh has the lowest tax-to-GDP ratio in South Asia—just 7-7.5%; compared to 11-12% in India, 9-11% in Pakistan, and more than 8% in Sri Lanka. A small tax base, tax evasion, inefficient administration, and an import-dependent tax structure have led to a large deficit in revenue collection over the past two years.

According to NBR data, revenue collection in the first four months of the 2025-26 fiscal year was Tk 1,19,478 crore—a shortfall of about Tk 17,200 crore from the target.

In the 2024-25 fiscal year, the government paid interest of Tk 1,324.60 billion, which is 17% more than the previous year. Interest on foreign debt increased by 21%, on domestic debt by 16%, and interest expenditure on treasury bills and bonds increased by 43%. In the 2025-26 budget, the allocation for interest payment is Tk 1,22,000 crore—which is becoming the largest expenditure item in the budget.

Former chief economist MK Mujeri warned that the debt ratio is still within limits, but solvency is deteriorating rapidly.

External debt has more than tripled in the last 13 years due to mega projects and budget support. The IMF now assesses Bangladesh’s debt as ‘medium-risk’. The IMF’s DSA report says that the debt-to-export ratio is 162%, which is far above the safe limit. Weak exports have further increased debt risk. The government has been given an external debt ceiling of $8.44 billion for the 2025-26 fiscal year.

ERD says that installments of large foreign loans, including Rooppur, will increase rapidly from 2026-27, and this additional pressure will continue until at least 2034.

The government is preparing to form a ‘Debt Management Office (DMO)’ on the advice of the IMF-World Bank. This is being taken with the aim of making debt management more transparent by integrating loan risk assessment, issue management and databases.

Bangladesh is now facing high development costs, a weak fiscal structure, and sluggish exports as it moves towards middle-income status. Economists say that unless fiscal reforms are implemented, project selection is tightened, foreign debt dependence is reduced, and economic stability is restored, debt and interest rate pressures will be the biggest risks in the next budgets.