TDS Desk:

Bangladesh’s total interest payment on loans for the next two fiscal years is set to reach Tk 2,537 billion, as stated in the government’s ‘Medium Term Macroeconomic Policy Statement for 2023-24 to 2025-26’. The breakdown reveals Tk 1,154 billion slated for the 2024-25 fiscal year and Tk 1,383 billion for 2025-26.

Domestically, the interest payments are projected to be Tk 1,008 billion in 2024-25 and increase to Tk 1,205 billion in 2025-26. Conversely, payments on external loans are significantly lower, with Tk 146 billion due in 2024-25 and Tk 178 billion in 2025-26.

The government aims to reduce its total expenditure on interest payments by the end of the 2025-26 fiscal year. Historically, in FY 2020-21, 15.4 percent of total expenditures were devoted to interest payments. This figure is forecasted to decrease to 13.5 percent by the end of FY 2025-26.

In more detail, domestic interest payments are expected to drop from 14.4 percent of total government expenditures in FY 2020-21 to 11.6 percent in FY 2024-25, returning to 11.8 percent in FY 2025-26. In contrast, external interest payments, which comprised 0.9 percent of total expenditures in FY 2020-21, are anticipated to rise, reaching 1.7 percent by FY 2025-26.

This increase is attributed partly to the depreciation of the taka against the US dollar and heightened external financing needs. The prevalence of National Savings Certificates in the debt portfolio, a traditionally high-interest option, has also been a factor in elevated interest costs. However, a projected decrease in the share of these instruments is expected to bring down the implicit interest rate of domestic financing.

The implicit domestic interest rate is anticipated to improve from 10 percent in FY 2020-21 to 9 percent in FY 2024-25 and FY 2025-26. Meanwhile, external borrowings, influenced by global interest rate hikes and local currency depreciation, are likely to increase the external implicit interest rate from one percent in FY 2020-21 to two percent in FY 2025-26.

Inflationary pressures have kept the yield of marketable securities high, maintaining an overall implicit interest rate of around six percent, which is expected to stay consistent over the medium term.

To address the projected fiscal deficits of Tk 2,792.3 billion in 2024-25 and Tk 3,170.7 billion in 2025-26, the government plans to secure Tk 1,200.3 billion from external sources in the next fiscal and Tk 1,306.4 billion in 2025-26, along with Tk 1,677.7 billion and Tk 1,864.4 billion from domestic sources, respectively. Source: UNB