—Syed Ishtiaque Reza—

As the current fiscal year reaches its midpoint, a troubling picture of Bangladesh’s economy is becoming increasingly clear: government operations are being sustained largely through borrowing.

Development spending remains sluggish, private investment is weak, and revenue collection continues to fall short. In this environment, both domestic and foreign debt have become the government’s primary lifeline. Recent data from Bangladesh Bank and the Ministry of Finance suggest that this is not a temporary imbalance but a deeper structural concern.

In the first half of December alone, government borrowing from the banking sector increased by more than Tk 33,500 crore. This marks a sharp reversal from the early months of the fiscal year, when government bank borrowing remained limited between July and November.

The primary reason at that time was the near-standstill in development expenditure, which reduced immediate financing pressure. However, within just two weeks, the situation changed dramatically. As of 8 December, total government borrowing from the banking sector rose to Tk45,239 crore, placing renewed strain on an already fragile banking system.

Bankers point to several immediate factors behind this sudden surge. These include government subsidies related to the merger process of five Shariah-based banks, increased administrative spending ahead of the national election, and persistent revenue shortfalls.

Together, these pressures have pushed the government toward aggressive bank borrowing. As a result, the credit flow to the private sector is being crowded out.

At the same time, government reliance on national savings certificates has increased once again. During the first four months of the current fiscal year, the government borrowed a net Tk2,369 crore from savings instruments.

This is a notable shift from the previous three fiscal years, when net sales were negative due to higher encashment than new issuances. The most alarming indicator, however, is the size of total public debt. For the first time in Bangladesh’s history, government debt has crossed Tk21 trillion.

A closer look at the debt composition reveals further vulnerabilities. External debt now accounts for roughly 44 per cent of total public debt. Over the past five years, foreign debt has more than doubled, from Tk4.20 trillion in 2021 to Tk9.49 trillion today.

Domestic debt has also risen sharply, increasing from Tk7.22 trillion in 2021 to nearly Tk12 trillion at present. This dual rise indicates that the government is increasingly dependent on borrowing from all available sources.

Economists warn that this trajectory is risky in the long run. Bangladesh currently runs a revenue budget with virtually no surplus.

The tax-to-GDP ratio remains around 7 to 7.5 per cent, one of the lowest in South Asia. Unless revenue collection improves substantially, the government will struggle not only to finance development projects but even to meet routine expenditures without taking on more debt. Compounding the problem is the relatively high interest rate on domestic borrowing, which threatens to inflate future budget deficits through rising debt servicing costs.

Another critical dimension of the crisis is stagnation in investment and employment. Political uncertainty, high interest rates, dollar shortages, rising import costs, and instability in the banking sector have discouraged new private investments. As a result, the productive sector is failing to expand, and new jobs are not being created.

Many industrial projects planned for the 2024-25 fiscal year have stalled due to financing and import constraints. Existing factories have scaled back production under pressure from weak demand and rising costs. The labour market has suffered accordingly, with job creation slowing and layoffs increasing in certain sectors.

Development spending tells a similarly discouraging story. Following the change in government, progress on ongoing projects has slowed significantly. In some ministries, project expenditures have fallen by 10 to 30 per cent. Between July and November, the implementation rate of the Annual Development Programme (ADP) stood at just 11.75 per cent, the lowest in six years.

Revenue weakness lies at the heart of this problem. For several consecutive years, revenue targets have gone unmet, leaving year-end shortfalls approaching Tk. 1 trillion. Policymakers are therefore increasingly dependent on domestic borrowing to bridge the gap. Without meaningful tax reforms and improved compliance, this reliance on debt is likely to intensify.

Despite the upcoming national election, the economy shows little sign of the usual pre-election dynamism. Traditionally, elections stimulate consumption, investment and market activity.

This time, however, inflationary pressure, dollar volatility, banking sector fragility, rising unemployment and increasing poverty have created a sense of economic paralysis. With barely two months left before the election, momentum remains absent.

Many now hope that a new government, once elected, will be able to restore confidence, accelerate reforms, and steer the economy away from excessive debt dependence. Without decisive action to boost revenue, revive investment and ensure efficient use of borrowed funds, the state’s growing reliance on loans risks becoming a long-term burden, one that future generations will be forced to carry.

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The writer is a journalist and columnist