TDS Desk:

When the interim government took office, it pledged to pursue austerity in state spending and exercise caution in borrowing. Yet over the following 18 months, it borrowed more than during any comparable period in the past. Total government borrowing in this period reached BDT 3.9 trillion. This comprises BDT 3.25 trillion borrowed in the first 11 months (August–June) of the 2024–25 fiscal year and approximately BDT 650 billion taken between July and December of the current 2025–26 fiscal year. If this borrowing trend continues, the total debt accumulated during the interim administration’s tenure could exceed BDT 4 trillion.

The interim government formed a committee shortly after taking office to assess the country’s economic situation and produce a white paper on the alleged looting and capital flight during the previous administration’s rule. The committee’s report uncovered extensive corruption surrounding public investment. It stated that nearly BDT 7 trillion was spent on goods and services for government operations during the Awami League’s 15-year tenure. Of this, between BDT 1.61 trillion and BDT 2.8 trillion was siphoned off as bribes by political leaders, bureaucrats and their associates. This period saw the financing of major projects through government funds, alongside assistance from development partners and several bilateral and multilateral loans.

Speaking to reporters after a recent meeting of the Executive Committee of the National Economic Council (ECNEC), planning adviser Dr Wahiduddin Mahmud also warned of falling into a debt trap. “The interest rate on foreign loans is rising due to graduating from the Least Developed Country (LDC) list, which will make borrowing more expensive in future,” he said. “Therefore, the government wants to rely on its own capacity as much as possible. We don’t wish to take loans for unnecessary large projects anymore. Excessive reliance on debt brings no benefit in the long run.”

At a seminar organised by the Bangladesh Planning Commission last December, National Board of Revenue (NBR) Chairman Md Abdur Rahman Khan said, “We have already fallen into a debt trap; moving forward is impossible without acknowledging this truth.”

The interim government’s borrowing has accelerated despite repeated warnings from policymakers. It has proceeded with numerous projects inherited from the previous administration while also approving new costly mega-projects of its own.

The interim government has approved 251 projects, including revised schemes, across 20 ECNEC meetings since taking office. The total allocation for these projects stands at BDT 3.78 trillion. Of the projects, 98 were originally launched by the now-ousted Awami League government. Following extensions and cost revisions, expenditure for these inherited projects rose by BDT 1.7 trillion. The remaining 153, with BDT 2.12 trillion allocated, are new projects proposed by the interim administration.

In July 2024, the first month of FY 2024–25, the now-deposed Awami League government borrowed BDT 28.53 billion. Since taking office in August 2024, the interim government borrowed BDT 3.25 trillion more over the remaining 11 months of that fiscal year, comprising BDT 1.6 trillion from domestic sources and BDT 1.65 trillion from foreign sources. Between July and October of the current FY 2025–26, it borrowed a further BDT 518.08 billion domestically. Net foreign borrowing from July to December totalled $1.07 billion, equivalent to BDT 131.03 billion at an exchange rate of BDT 122 per dollar. In total, the current interim administration has borrowed BDT 3.9 trillion in its tenure.

Mahbub Ahmed, former senior secretary of the finance division, told journalists: “Borrowing such a large amount in such a short time is not a sign of health for the macroeconomy. Overall, I see no reasonable justification for such a sharp rise in government debt, especially when development expenditure has been cut. Our debt repayment capacity is lower than others’ because government revenue is low. Increasing government revenue is the only way to boost repayment capacity. Therefore, we have reason to be concerned and cautious. If operational expenditures consume all revenue income, how will we fund development? Any unpopular or difficult decision is easier to take during an apolitical government’s term. So, this was the time to curb government expenditure. Failing to do so will make it a severe challenge to maintain macroeconomic stability for the incoming political government.”

Between July and October of the current fiscal year, the government borrowed an average of BDT 129.52 billion per month from domestic sources. If this pace continues, domestic borrowing for the first seven months (July–January) of the fiscal year will total BDT 906.64 billion. Over the July–December period, foreign loan disbursements averaged BDT 21.84 billion per month. On that basis, foreign borrowing for the seven months would reach BDT 152.88 billion. This indicates total government borrowing from July to January will exceed BDT 1.05 trillion. Adding this to the total borrowed over the 11 months of FY 2024–25 exceeds BDT 4.31 trillion during the interim government’s 18-month tenure.

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, told journalists: “Given the state of the economy when the current interim government took charge, it had no option but to borrow to run the state. The government was compelled to take loans. Furthermore, several foreign loans have arrived conditional on reforms. Some of these reform programmes have been implemented, while others are midway. Ultimately, if these reforms are not completed, the intended purpose of the borrowing won’t be achieved. The government can claim it has managed to weather the economic crisis that had emerged, but it can’t be said to have achieved any major success worth celebrating.”

A large portion of the interim government’s borrowing has gone to operational costs, mainly government salaries and pensions, loan interest payments, and subsidies. In the 11 months from August to June of FY 2024–25, the government spent BDT 6.04 trillion. A further BDT 1.01 trillion was spent between July and September of 2025–26. Operational expenditure over this 14-month period totalled BDT 5.39 trillion, while development spending was BDT 1.65 trillion.

With monthly outlays averaging BDT 503.86 billion, total government expenditure over the full 18-month period is set to reach around BDT 9.06 trillion.

Professor Mustafizur Rahman, Distinguished Fellow at the private research organisation Centre for Policy Dialogue (CPD), told journalists: “Borrowing more than the Annual Development Programme (ADP) allocation means loans are being used to cover operational expenses beyond the development sector. This reflects the government is unable to raise revenue. Structural rigidities in spending further constrain options. About 80 percent of revenue expenditure goes on government salaries and pensions, loan interest and subsidies — these can’t be cut. Consequently, cost-cutting alone can’t balance the books. If revenue can’t be increased, borrowing becomes necessary, and if that fails, even operational expenses must be financed through loans.”

Asked where this rising debt trajectory leads, Professor Rahman said: “If stringent cost-saving measures had been implemented, borrowing might have been lower. But the interim government has not done this, making it harder for a political government to act later. For transparency, the government should clarify whether this large borrowing has funded development or operational spending. If loans have been used for operational costs, that would be a serious concern.”

Revenue collection has lagged behind the rise in government borrowing and expenditure. In the 11 months of FY 2024–25, the interim government collected BDT 4.1 trillion in revenue. NBR collected a further BDT 1.85 trillion between July and December of FY 2025–26. Total revenue in 17 months under the interim government now stands at BDT 5.95 trillion.