Bangladesh spent more than $26 billion on servicing domestic and foreign debt in fiscal year (FY) 2023-24, close to half of the total national budget, according to a study by a private think tank.
The increased payments sharply constrained development and social expenditures, shows the study by Research and Policy Integration for Development (RAPID).
The burden of debt servicing is rising alongside a growing debt stock and higher interest payments, crowding out public spending.
“Rising debt-servicing costs against weak domestic revenue mobilisation efforts risk undermining development and macroeconomic stability,” said RAPID Chairman MA Razzaque.
Speaking at a seminar on the country’s socioeconomic priorities in Dhaka on Tuesday, he outlined 12 major challenges for the next government, with the national elections slated for 12 February.
The challenges include debt servicing pressures, graduation from least developed status, controlling inflation, limited social spending, energy security and unemployment.
In FY24, Bangladesh’s total debt stock stood at $174 billion, equivalent to 38.5 per cent of its gross domestic product.
The country’s total domestic and external debt servicing amounted to $26.26 billion the same year.
“If we convert Bangladesh’s domestic revenue into US dollars, only 36 per cent remains after the debt servicing,” Razzaque said, citing a joint debt sustainability analysis by The World Bank and International Monetary Fund (IMF).
When overall government revenue is considered, including National Board of Revenue receipts and non-tax income, the share remaining after debt payments exceeds 31 per cent.
As per the study, these figures underline how debt obligations limit the government’s ability to expand development spending even when policy priorities demand higher investment.
Over the past four to five years, development budgets often stagnated in real terms, with a substantial portion of public expenditure absorbed by debt repayments.
While foreign borrowing often attracts the most attention, Razzaque said domestic borrowing has also risen rapidly, particularly between FY16 and FY24.
Besides, this added to the overall debt-servicing burden, Razzaque said.
The study warned that without stronger revenue mobilisation and careful debt management, rising debt costs could continue to erode fiscal flexibility, complicating efforts to support the country’s growth, protect vulnerable groups and maintain macroeconomic stability.
