Interim government breaks loan record, faces looming tough debt realities

Staff Correspondent

Many expected that spending cuts and debt dependency would decrease after the change of government. But the reality is the opposite. In the 2024-25 fiscal year alone, government borrowing exceeded all previous records.

According to the latest statistics from the central bank, the government borrowed Tk 3,28,249 crore from domestic and foreign sources this fiscal year. As a result, the total government debt has increased to Tk 2,250,904 crore.

Taking on such a huge debt in a single fiscal year is unprecedented in the history of Bangladesh. Economists are warning that the new government that takes office after the upcoming parliamentary elections will have to deal with the pressure of managing the huge debt right from the start. They are also not ruling out the risk of the country falling into a debt trap in the long term.

According to Bangladesh Bank data, the total government debt at the end of the 2023-24 fiscal year was Tk 19,22,655 crore. It increased by Tk 3,28,249 crore in a year. Of the new total debt, Tk 1,13,939 crore was taken from domestic sources and Tk 1,146,965 crore from foreign sources.

Historically, when the Awami League government took power in 2009, the total debt was only Tk 276,830 crore. In a decade and a half, it increased to more than Tk 19 lakh crore in the 2023-24 fiscal year.

That is, the debt balance increased by about 16 lakh crore taka during the Awami League government. However, the amount of debt increase in a single year in the first full fiscal year of the interim government has exceeded any time in the past.

The highest borrowing in a single year from 2016-17 to 2023-24 was in the 2021-22 fiscal year—Tk 2,50,148 crore. But in the 2024-25 fiscal year, that figure crossed the Tk 3 lakh crore mark for the first time.

Government sources say that after the political changes, a huge amount of foreign loans have been received as budget support from international organizations. More than $3.5 billion in assistance has come from various development partners, including the World Bank and the IMF. This money has been used to stabilize foreign exchange reserves and pay off arrears in the power and fuel sectors.

Dr. Anisuzzaman Chowdhury, Special Assistant to the Chief Advisor to the Ministry of Finance, said that when he took office, the economy was in a weak state, revenue collection was declining, and some banks had to be supported—as a result, there was no option but to take out loans.

Not only the principal of the loan, but also the interest payment is now a major concern. In the 2024-25 fiscal year, the government had to pay 1,34,430 crore taka on interest, which is more than one-fifth of the total government expenditure. This expenditure is expected to increase further in the current fiscal year.

At the same time, the amount of debt taken through short-term treasury bonds has increased to Tk 2.7 trillion. When the maturity of these bonds is completed, the government may have to resort to taking new loans to repay the old ones.

Loan repayments for several major projects, including the Rooppur Nuclear Power Plant, Metrorail, Karnaphuli Tunnel, Dohazari-Cox’s Bazar Railway, and Padma Bridge Rail Link, have now begun or will begin in stages.

Most of these projects are foreign-funded. In many cases, project costs have increased, and currency depreciation is also increasing the pressure to repay. In particular, the Rooppur project will start repaying the loan from the 2028-29 fiscal year, which could become a major liability for the future government.

On the other hand, there is no desired progress in revenue collection. In the first six months of the current fiscal year, the deficit compared to the target was Tk 46,000 crore. Export earnings have also seen negative growth. Bangladesh’s position in revenue collection compared to GDP is still one of the lowest countries in the world.

The World Bank and IMF’s recent debt sustainability analysis has upgraded Bangladesh’s debt risk from low to medium, with revenue constraints and the shallowness of the domestic credit market being identified as major risks.

Economist Dr. Zahid Hossain believes that the biggest challenge now is the management of existing debt. It is not possible to reduce the debt burden without increasing revenue. At the same time, the decision to increase new large expenditures could put further pressure on the future economy.

According to analysts, now it is not just development projects but also interest and installment payments on loans that are becoming the major reasons for borrowing. As a result, the first task of the economy for whichever government takes charge will be to bring strict discipline to debt management and find realistic ways to increase revenue.

Dr. Mustafa K. Mujeri also believes that the pressure to repay foreign loans will increase rapidly as the grace period for past mega projects ends. In such a situation, there is a risk of taking new loans to repay old loans.