Interest Payments to Hit Tk 4.3 Lakh Crore, Economists Warn Crisis
Graphics: Agamir Somoy
The government faces growing anxiety over a mounting debt burden, with interest payments projected to reach Tk 4,32,300 crore over the next three fiscal years.
This staggering sum represents two and a half times the size of the current development budget, sparking fears among economists regarding long-term financial stability and economic growth.
Experts attribute the current predicament to the waste, misuse, and corruption associated with previous loans. They warn that unless the government takes immediate and effective action, the country risks facing a major crisis similar to the one experienced by Sri Lanka.
In a recent macroeconomic policy statement, Ministry of Finance indicated that interest payment expenditures will continue to climb in the coming years, ultimately driving up total government spending.
This pressure stems from a combination of factors: increased total debt, rising financing costs in global markets, high domestic interest rates, the devaluation of the currency, and growing foreign debt liabilities.
Economist MK Mujeri told Agamir Somoy, “We also have a crisis. We must be careful not to fall into a debt trap. Now, loans must be taken with caution. And to get out of the crisis, correct policies, measures, and implementation at the logical time must be done. Otherwise, we will have to move towards Sri Lanka.”
Mujeri noted that the improper use of funds from previous loans has transformed the debt into a significant burden for the nation.
Recent data from the Ministry of Finance highlights a steep upward trajectory for interest payments over the coming years. The government expects to allocate Tk 1,27,500 crore for these payments in the 2026-27 fiscal year, followed by a further increase to Tk 1,42,100 crore in FY 2027-28.
This rising trend continues into the 2028-29 fiscal year, with expenditures projected to reach Tk 1,62,700 crore.
In total, this interest will cost the nation Tk 4,32,300 crore over the three-year period. Although the Finance Division observes that interest as a percentage of GDP may technically decline from 2.5 percent in FY 2024-25 to 1.9 percent in FY 2028-29, the actual monetary burden will grow significantly as the total size of the economy expands.
Now the total domestic and foreign debt stands at Tk 23,22,300 crore, a figure expected to soar to Tk 33,77,600 crore within three years.
Several factors are driving these costs upward. Finance Division identified Bangladesh Bank’s strict monetary policy - designed to control inflation by raising interest rates - as a key driver that has increased the cost of government borrowing, which primarily comes from the banking sector.
Moreover, the large-scale issuance of Treasury bills and Treasury bonds has contributed to higher interest obligations.
While foreign debt interest accounts for a smaller portion of the total, it is growing at a much faster rate.
The primary culprit is the devaluation of the Taka against the US Dollar, which requires the government to spend more local currency to service the same amount of foreign debt. High global market interest rates have also increased the cost of new foreign loans.
Perhaps the most critical concern acknowledged by the Finance Division is the low revenue collection, which necessitates further borrowing.
Bangladesh’s tax-to-GDP ratio remains significantly below international standards, making it increasingly difficult to balance development spending with debt servicing.
Alternate Executive Director of the Asian Development Bank (ADB) and former Senior Finance Secretary Mahbub Ahmed told Agamir Somoy that the total debt figure itself is not the primary issue.
He said, “The ratio of Bangladesh’s debt compared to peer countries is still outside the risk limit. The real disaster is happening in the government’s repayment capacity.
“Due to extreme inefficiency in revenue and tax collection, the tax-to-GDP ratio in the country has dropped to only 6-7 percent, which should have been at least 12-15 percent. If that were the case, there would be nothing to fear.”
