Government under pressure to repay Tk366,000 crore in loans

Staff Correspondent

By the end of the current fiscal year, the Bangladesh government will have to spend more than $30 billion to repay domestic and foreign debt installments and interest. At the current market rate (about 122 taka per dollar), this figure stands at about 366,900 crore taka or about 3.66 lakh crore taka. This huge liability is creating new pressure on the government’s overall financial management.

The International Monetary Fund (IMF), an international lending agency, said in its recently released ‘Article Four Consultation’ report that the total debt repayment in the current fiscal year could stand at around $30.59 billion. In the last fiscal year, this figure was $26.63 billion. In the next fiscal year, it could increase further to $33.84 billion.

The IMF has warned that unless revenue collection is significantly increased, Bangladesh could face a ‘rollover risk’ or debt renewal risk. This means that the ability to borrow new money to repay old debt will be limited. As a result, it may have to pay higher interest on future loans, which will make budget management more difficult.

According to the report, Bangladesh’s total public debt in the 2024-25 fiscal year stood at about $188.79 billion, which is about 41 percent of GDP. Of this, $101.24 billion was from domestic sources and $87.55 billion from foreign sources.

The pressure of domestic debt is currently a major cause of concern. In the current fiscal year, domestic debt was 22.6 percent of GDP; however, 89.4 percent of the government’s total revenue was spent on paying interest and installments on this debt. The IMF has stated that this ratio is higher than in many countries of the same level.

The agency also said that the government’s excessive bank-dependent borrowing could crowd out the private sector. This could reduce credit flow to the industrial and investment sectors and slow down overall economic activity. At the same time, there is a risk of increasing pressure on interest rates and inflation.

The tax-to-GDP ratio is currently below 7 percent, which poses major constraints in debt management. Finance Minister Amir Khasru Mahmud Chowdhury said the target is to raise the ratio to 8 percent in the next budget. However, according to the IMF, it is necessary to further increase the revenue-to-GDP ratio in the medium term for a sustainable solution.

The report also said that in the event of a major natural disaster or economic shock, debt could exceed 110 percent of GDP by 2030. Although current debt levels are ‘sustainable’ according to IMF criteria, risks are clearly increasing as the debt-to-revenue ratio increases rapidly.

The agency recommended expanding the investor base of government securities and strengthening the liability management framework to reduce risk. It also emphasized avoiding high-interest commercial loans and accelerating banking sector reforms.

Economists say that without strengthening revenue collection, increasing spending efficiency, and structural reforms in debt management, it will become increasingly difficult for the government to manage this huge debt burden.