TDS Desk:

National debt stood at BDT 19.23 trillion when the Awami League government was ousted on August 5, 2024. Many expected the subsequent interim government to curb spending and limit borrowing. Central bank data, however, show the opposite: the interim government has presided over the largest single–year increase in loans on record. In FY 2024–25, the government borrowed BDT 3.28 trillion from domestic and foreign sources, lifting total debt to BDT 22.5 trillion.

Economists and policy analysts warn that the next government will face the daunting task of managing this debt. A wider concern has emerged that Bangladesh may be sliding into a long–term debt trap.

Bangladesh Bank figures show total public debt from domestic and foreign sources reached BDT 22.5 trillion at the end of FY 2024–25. Domestic borrowing stood at BDT 11.03 trillion, while foreign debt reached BDT 11.46 trillion. The total marks an increase of BDT 3.28 trillion from the previous fiscal year’s BDT 19.22 trillion. The interim government, sworn in on August 8, 2024, was in charge throughout the fiscal year, excluding July.

Over the past decade and a half, budgets under the now–ousted Awami League relied heavily on borrowing. The budgets were, however, never fully implemented in any fiscal year, while repeated large deficits steadily increased the debt. When Sheikh Hasina took office in 2009, the national debt stood at BDT 2.76 trillion. By FY 2018–19, it had risen to BDT 8.73 trillion. The following year, annual borrowing crossed BDT 10 trillion for the first time. During Sheikh Hasina’s final days in power before her ouster, debt had climbed beyond BDT 19 trillion at the end of FY 2023–24. Her tenure saw an increase of nearly BDT 16 trillion in debt.

An analysis of government borrowing from domestic and foreign sources shows that between FY 2016–17 and FY 2023–24, the largest single–year borrowing was BDT 2.5 trillion in FY 2021–22, though no other fiscal year during the period exceeded that mark. Under the current interim government, however, borrowing surpassed BDT 3 trillion in FY 2024–25, marking a historic first for the country.

Government sources say more than $3.5 billion in loans was secured from development partners, including the World Bank and the International Monetary Fund, after the August 2024 mass uprising. Bangladesh received the funds as budget support to implement reform programmes, helping to shore up foreign exchange reserves at the time. The interim administration has also cleared more than $2.5 billion in arrears in the power and energy sectors, driving additional borrowing from domestic and foreign sources.

Asked about the rise in borrowing under the current administration, Anisuzzaman Chowdhury, the chief adviser’s special assistant for the finance ministry, told journalists: “The previous government took many unnecessary loans in the name of development projects. The economy was in dire condition when we took charge. Revenue collection was below target, and the government had to inject funds to rescue some banks. These factors forced the interim government to borrow.”

Servicing interest on the accumulated debt has already put heavy pressure on the interim government. In FY 2024–25, it paid BDT 1.34 trillion in interest, more than 21 percent of the total government spending for the fiscal year. Interest payments are set to rise further in the ongoing fiscal year. By the end of FY 2024–25, borrowing through treasury bonds with maturities of up to five years had reached BDT 2.7 trillion. As these bonds fall due in the coming years, the government will need to repay the principal through issuing new bonds to refinance the liabilities.

Bangladesh’s most expensive project by value is the Rooppur nuclear power plant. Approved in 2016 at a cost of BDT 1.13 trillion, including a BDT 910 billion loan from Russia’s Exim Bank, the budget has since risen by BDT 260 billion due to currency depreciation and higher material costs. Although the first loan repayment was due in March 2027, it has been extended by 18 months to September 2028. Whichever government is in office in FY 2028–29 will have to begin servicing the debt.

Beyond Rooppur, the government also has to repay loans and interest on several other large projects in the transport infrastructure sector. Repayment has already begun, starting with the Dohazari–Cox’s Bazar railway line which was funded by a BDT 90.93 billion loan from the Asian Development Bank. Under the agreement, the government is now paying about BDT 4.2 billion a year, but repayment will rise to BDT 6.6 billion by 2028, with a separate 2 percent interest charge. Final repayment for the project is due in 2048.

The Uttara–Motijheel metro rail, a major transport project from the previous administration, is also under repayment since 2023 on the BDT 197.18 billion loan from the Japan International Cooperation Agency for Metro Rail Line–6. The loan runs for 30 years, implying an average annual principal payment of BDT 6.57 billion. JICA disbursed the loan in five tranches, with repayments on the first tranche now underway; payments on subsequent tranches will follow, with the final payment due in FY 2061–62.

The Karnaphuli tunnel was financed through Chinese loans. Of the total BDT 106.89 billion project cost, BDT 60.70 billion came from loans which Bangladesh has 15 years to repay, resulting in an average annual principal payment of BDT 4.05 billion. The project is currently operating at a loss.

The Padma Bridge rail link was also financed with Chinese credit. The project’s total BDT 392.46 billion cost includes BDT 210.36 billion in loans. According to the Economic Relations Division, the debt carries a six–year grace period and a 20–year repayment term, leaving 14 years for repayment. This implies an average annual payment of BDT 15.02 billion, at an interest rate of 2 percent plus a 0.25 percent service charge.

Bangladesh ranks among the world’s lowest in tax revenue as a share of GDP. Total revenue collected in the first half (July–December) of the current fiscal year fell BDT 460 billion below target. The period also recorded negative export growth. This poses a serious challenge to raising national income, one that will be compounded by rising debt and interest servicing pressures. Economists say the next government, taking office after the February 12 parliamentary elections, will carry this fiscal burden throughout its term.

International lenders had long assessed Bangladesh as being in a strong position on its debt–to–GDP ratio. However, a revision of export income data raised the country’s debt risk from low to moderate. The reassessment was set out in a joint World Bank–IMF Debt Sustainability Analysis on Bangladesh published in August last year. The report also flagged significant risks to repayment capacity, citing weak revenue–to–GDP ratios and the shallow domestic debt market.

Economist Zahid Hussain says the debt inherited by the interim government represents the central challenge. “No government in the world can operate for long on borrowing,” he told journalists. “The debt already on the government’s shoulders is enormous. With revenue–based income at its current level, this burden is unlikely to ease soon. At the same time, salary increases for government officials are being pursued without a clear plan to raise revenue. Implementing the pay commission’s proposals will add BDT 1 trillion to operating costs. There’s no answer as to where this money will come from.”

The former lead economist at the World Bank’s Dhaka office added: “In the past, little thought was given to how the borrowed funds would be repaid. This practice cannot continue. Instalments on foreign loans will keep rising. Also the pressure to service domestic debt will intensify. The next elected government will have to borrow with extreme caution.”

Economists and sector experts say that during the 15 years of the ousted Prime Minister Sheikh Hasina’s rule, the government secured foreign loans for development projects without proper scrutiny. Analysts allege that much of this funding from development partners and donors was siphoned abroad through irregularities and corruption. Today, borrowing is increasingly required not for new projects but to cover interest payments and government operating costs. Analysts warn the debt stock will keep rising, leaving any new government to manage repayments of both principal and interest.

Dr Mustafa K Mujeri, former chief economist of Bangladesh Bank and executive director of the Institute for Inclusive Finance and Development, says the government may need to borrow from foreign sources merely to meet existing external loan obligations. Speaking to journalists, he said: “A large portion of the foreign loans taken during the previous government under the banner of mega projects has been siphoned out of the country. Loans were obtained by inflating project costs two– to three–fold. The grace periods on many of these loans are now coming to an end. In the coming years, pressure on the government to repay foreign debt will steadily increase. In this situation, the government may have to take on new loans to service existing foreign debt.”

On the rise in borrowing under the interim administration, he added: “Since the uprising, the government has borrowed from development partners including the World Bank and IMF. But the government is no longer taking on major development projects. Authorities must clarify which sectors are using the foreign loans. Government revenue collection remains weak, while domestic and foreign borrowing continues to push up the debt burden.”