Staff Correspondent:

Significant rises in domestic and overseas borrowings make the government earmark some Tk 1.22 trillion for hefty interest payments in the upcoming budget and officials see no letup in liability increases in the near future.

Experts see high debt stock, interest-rate rise and depreciation of the local currency behind the rise in debt-service costs.

The estimated budgetary allocation for interest payments accounts for an increase by Tk 85 billion or 7.5 per cent compared to the allocation in the outgoing budget, they said.

In the current budget the allocation for interest payments is Tk 1.135 trillion of which Tk 930 billion is for domestic debt servicing while Tk 205 billion for servicing foreign loans.

Officials have said for the next fiscal year, Tk 1.0 trillion will be put aside to pay interest on local loans while Tk 220 billion for external loans.

In the current fiscal budget the net foreign-borrowing target was set at Tk 907 billion which the budget officials now have planned to enhance to Tk 1.0 trillion in the upcoming budget.

The target for domestic borrowing was set at Tk 1.609 trillion in the current budget which may go down slightly to Tk 1.4 trillion in the next fiscal year.

A senior finance division official the country’s external debts rose over $100 billion in December 2023 and continued rising continuously.

Many large-sized foreign loans have matured in the recent months, thus the burden for interest payment has also increased.

He said in the fiscal year 2023-24, the country paid a total of $3.36 billion as foreign- debt interest and principal. Of the total sum, $2.01 billion was paid as principal amount while $1.35 billion as interest.

“The debt-servicing burden will go up significantly this year, and next year, too,” said the official. So, the government is increasing total allocation on this account despite preparing a comparatively smaller budget.

Central bank data show that at the end of January 2025, the total outstanding domestic borrowings of the government stood at Tk 9.42 trillion, up from Tk 8.22 trillion a year back.

Dr Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, sees two main hikers behind the increase in interest expenditures. “One reason is the stock of both domestic and foreign debts has increased significantly. The other reason is the rate of interest has also increased,” he says.

Moreover, deprecation of the local currency, taka, has also enhanced the expenditure against debt servicing.

Mr Hussain says some large loans taken for megaprojects will mature in the coming years and so expenditure for debt servicing will continue increasing.

“To cope up with the pressure of high expenditures, an increase in revenue generation is very important,” he said.

Also, he suggests lowering budget deficit as much as possible by cutting unnecessary expenses.