Government debt had accumulated to Tk 16.97 trillion until March 2024 in an increase by Tk 840 billion or 5.0 per cent year on year, as Bangladesh grapples to meet its fiscal deficits.
The sharp rise in government debts signals growing financial strains on the economy, potentially affecting inflation rates that hike public spending on essential services, analysts say.
Bangladesh's government debt has been on a steady upward trajectory, driven by the need to meet its budget-deficit financing.
However, the recent acceleration in debt buildup comes amid global economic headwinds, volatile currency market and less-than-expected growth in resource mobilisation which have compounded domestic challenges such as slow economic growth and high inflation.
Of the Tk 840-billion increase in government debt, a significant portion has come from domestic borrowing--58 per cent of total debt--driven by the need to fund budget deficits amid lower revenue collection, according to finance division.
External debt, also on an upturn, has been more stable, reflecting ongoing commitments or agreements to multilateral loans, from the IMF, the World Bank and the Asian Development Bank, for development and non-development projects.
Financing from the banking sector constitutes 57 per cent of the total domestic debt --followed by NSCs, 36 per cent, and the rest were financed from the GPF (general provident fund).
Total domestic debts are recorded Tk 9.83 trillion while external at Tk 7.14 trillion, according to finance division report.
It is expected that the reforms in the NSC will gradually reduce its contribution to deficit financing.
A breakdown shows 73 per cent of the financing through government securities originates from T-Bonds, reflecting government's preference for long-term instruments. T-bills are issued mostly for cash-management purposes and to create a balance between short-and long-term financing.
Up to the 3rd quarter of FY24, interest expense was 18-percent higher compared to the same time of FY23. The total interest payment was recorded at Tk 711.91 billion during July-March of 2023-24 fiscal year.
External interest payments increased by 162 per cent or Tk116.02 billion during the period relative to the same period in FY23.
People familiar with the matter told the FE that this is due to the start of interest payment on some major foreign loans.
Economists warn that the rapid increase in debt could lead to higher interest payments, diverting resources away from essential public services.
Additionally, with the taka getting under pressure in the currency markets, there are concerns that further borrowing could exacerbate inflationary trends, eroding purchasing power for ordinary citizens.
However, economists say that the interim government will take measures to address the structural issues underlying the debt increase, and call for more comprehensive fiscal reforms.
"If Bangladesh does not take steps to rein in its rising debt, we could see a situation where the country is forced to cut back on vital public services or seek more expensive financing options," says Dr M. Masrur Reaz, chairman of the Policy Exchange of Bangladesh.
"The key will be balancing growth with fiscal discipline, something that has proven challenging in the current economic climate."
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