TDS Desk:

Government debt has accumulated to Tk1,697,000 crore until March 2024 in an increase by Tk84,000 crore or 5% year on year, as Bangladesh grapples to meet its fiscal deficits.

Bangladesh’s government debt has been steadily rising, driven by the need to meet its budget-deficit financing.

The sharp rise in government debts signals growing financial strains on the economy, potentially affecting inflation rates that hike public spending on essential services.

However, the recent acceleration in debt buildup comes amid global economic headwinds, volatile currency market and less-than-expected growth in resource mobilization which have compounded domestic challenges such as slow economic growth and high inflation.

Of the Tk84,000 crore increase in government debt, a significant portion has come from domestic borrowing—58% of total debt–driven by the need to fund budget deficits amid lower revenue collection, according to the Finance Division.

External debt, also on an upturn, has been more stable, reflecting ongoing commitments or agreements to multilateral loans, from the IMF, the World Bank and the Asian Development Bank, for development and non-development projects.

Financing from the banking sector constitutes 57% of the total domestic debt –followed by NSCs, 36%, and the rest were financed from the GPF (general provident fund).

Total domestic debts are recorded Tk983,000 crore while external at Tk714,000, according to a Finance Division report.

It is expected that the reforms in the NSC will gradually reduce its contribution to deficit financing.

A breakdown shows 73% of the financing through government securities originates from T-Bonds, reflecting the government’s preference for long-term instruments.

T-bills are issued mostly for cash-management purposes and to create a balance between short-and long-term financing.

Up to the third quarter of FY24, interest expense was 18% higher compared to the same time of FY23.

The total interest payment was recorded at Tk71,191 crore during July-March of FY24.

External interest payments increased by 162% or Tk11,602 crore during the period relative to the same period in FY23.

Economists warn that the rapid increase in debt could lead to higher interest payments, diverting resources away from essential public services.

Additionally, with the taka getting under pressure in the currency markets, there are concerns that further borrowing could exacerbate inflationary trends, eroding purchasing power for ordinary citizens.