Interest payment on government loans only sucks up one-third of Bangladesh's operating-budget expenditures, insiders said, sapping its public-spending abilities.
Already, 52.3 per cent of the total outlay earmarked for interest payment in debt service had been spent in the first half (H1) of the current fiscal year (FY) 2023-24, they said.
Economists and officials have expressed their concern over the steep rise in loan repayment as they feel it weighs on public spending toward the country's development and economic growth.
According to the Ministry of Finance (MoF), the government spent Tk 502.23 billion on interest- payment segment of the public debts alone during the July-December period FY2024, which accounts for a third of the Tk 1.51-trillion spending target in the operating budget.
The government spent another two-thirds of the total Tk1.51-trillion expenditures during the H1 this fiscal for 13 other sectors.
The interest payments on government borrowings have been ballooning every year following the debt buildups over past few years for spendthrift development expenditure, officials and economists told the FE writer Friday.
The government in the current FY2024 budget has allocated Tk 943.76 billion, Tk 140 billion higher than the original allocation of Tk 803.75 billion in the last FY2023 budget, for repayment of interest to different local and foreign lenders.
The spending target is also Tk 22.69-billion higher than the Tk 921.07 billion actual expenditures in the last fiscal.
Out of the Tk 4.75 trillion worth of operating-budget allocation in the current fiscal, the government set aside Tk 943.76 billion or 19.9 per cent of the total expenditure target for the interest payment, MoF data showed.
Meanwhile, a staggering amount of Tk921.07 billion was spent from the last fiscal budget for paying interest only in debt service to local and foreign lenders, the MoF officials said.
The original allocation was Tk 803.75 billion on this head in the national budget for the fiscal year 2023, some Tk 117.32-billion lower than the upwardly revised allocation of Tk 921.07 billion, MoF official data showed.
Economists and officials observe that since the government has gone on borrowing higher funds from internal as well as external lenders over the last few years, its year-on-year debt-service liabilities are also growing above the set marks.
According to the MoF data, the government repaid Tk 777.79 billion in interest against loans in the previous FY2022 against the revised budget allocation of Tk 712.44 billion.
The government usually borrows from the domestic bank and non-bank systems and also from external development partners, including the World Bank, the Asian Development Bank, Japan, the International Monetary Fund, and China, for minimising its budget deficit stemming from income-expenditure gap.
In the current FY, government's budget deficit was estimated at Tk 2.62 trillion out of its total Tk7.62 trillion worth of national budget.
A senior official at the ministry says, "The interest payments could even be higher than the above- mentioned expenditure in the current fiscal year if the government agencies should implement cent percent of the national budget."
However, the authorities usually cannot execute even the revised budget fully-for example, 86.15 per cent of the total outlay in the FY2023 could be spent, MoF data showed.
Government ministries and agencies spent Tk 5.65 trillion, or 86.15 per cent of the total Tk 6.56-trillion revised budget in the last fiscal.
Net government borrowings from the banking system in the FY2023 were worth Tk 1.18 trillion, some Tk 426-billion higher than that in the previous FY.
Besides, the gross borrowings from external resources were worth Tk 937.16 billion, Tk153.47 billion lower than in the previous FY2022.
Meanwhile, the government agencies had spent only 31.8 per cent of the total Tk 4.75-trillion operating budget during the July-December period in the current financial year.
Chairman and CEO of Policy Exchange Bangladesh Dr Masrur Reaz says the higher spending on interest payments against the lower expenditure of the overall budget is challenging for the economy.
"Since the government has taken a higher debt-laden development approach against comparatively lower base of revenue income, payments against outstanding foreign and local debts are swelling year on year," he told the FE correspondent.
"Actually, this is the consequence of the country's tight financial trajectory with lower revenue growth over the last few years and government's higher debt-laden development approach," he added.
He points out that the government has borrowed a lot over the last few years from the banking systems as well as from the foreign lenders, which has been reflected in the fiscal management over the last couple of years.
Since Bangladesh's public spending is one of the lowest against the slow revenue growth and higher borrowings, the government should stress quality spending and higher output from the development projects, the economist suggests.
"The excessive increase in the payment obligation also underscores the urgent need for reforms in tax policy and administration in order to increase domestic revenue mobilisation to fund government expenditure and public involvement."
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