Debt rises Tk2.6 lakh crore in 14 months of Yunus govt
Development spending hits 7-year low
Debt of the interim government led by Muhammad Yunus increased by Tk2,60,257 crore during the first 14 months of its tenure, even though development expenditure fell to its lowest level in seven years.
According to the latest debt bulletin published by the finance ministry, total domestic and foreign debt stood at Tk21,49,044 crore as of 30 September 2025.
Economists say although the interim administration moved away from large-scale mega projects and sharply curtailed overall development expenditure, it failed to reduce dependence on borrowing due to sluggish revenue collection, mounting repayment obligations and persistent operating expenditure.
Zahid Hussain, former lead economist of the World Bank's Dhaka office, said weak revenue mobilisation was the principal reason behind the debt increase.
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"Political instability following the August transition and subsequent disruptions in tax administration contributed to lower-than-expected revenue collection, limiting the government's fiscal space," he said.
Mounting debt
When the Awami League government was formed in 2009, the country's total debt stood at approximately Tk2 lakh crore. Before the fall of the previous government on 5 August 2024, total debt had stood at Tk18,88,787 crore on 30 June that year.
Officials said the figure could rise further once borrowing data up to mid-February is fully accounted for.
The debt bulletin published in December 2024 had initially placed total debt at Tk18,32,282 crore, but the figure increased by Tk56,505 crore following the conversion of foreign loans into the new exchange rate.
A breakdown of borrowing indicates that the interim government relied more heavily on foreign sources than domestic ones. During the period, it received instalments from the International Monetary Fund and secured budget support from multiple development partners. Budget support amounted to $3.44 billion in the last fiscal year, compared with $2 billion the previous year.
As a result, foreign debt rose from Tk8.12 lakh crore to Tk9.51 lakh crore over the 14 months.
Domestic debt also increased, from Tk10.76 lakh crore a month before the previous government's fall to Tk11.97 lakh crore by last September.
Data show that Annual Development Programme (ADP) implementation dropped to Tk1.53 lakh crore in the last fiscal year – the lowest in seven years. By comparison, ADP spending was Tk1.67 lakh crore in the fiscal 2018-19 and rose to Tk2.05 lakh crore in FY24, the final fiscal year of the previous administration.
Despite lower development outlays, borrowing continued to climb. Analysts attribute this partly to the settlement of arrears inherited from the previous government, including unpaid bills and subsidy-related liabilities.
Mahbub Ahmed, a former finance ministry senior secretary, said the interim government had borrowed largely to service old debts and manage repayment pressures.
In addition, high inflation prompted many savers to encash savings certificates, forcing the government to repay both principal and interest.
Although several projects were cancelled or suspended to rein in development expenditure, operating costs continued to outpace revenue growth.
Towfiqul Islam Khan, additional research director at the Centre for Policy Dialogue, said pressure from external debt servicing and currency depreciation also played a role in pushing up the overall debt stock.
Challenge for next govt
While the interim government cleared many of the outstanding liabilities left behind by the previous Awami League administration, it will, in turn, pass on several financial burdens to the new government. These include unpaid electricity bills, the disbursement of house rent allowances for MPO-listed teachers, and the implementation of a new national pay scale.
Tasked with transitioning away from a debt-reliant economy, the BNP – having formed a government on the back of promises such as the introduction of "Family Cards" and a revised salary structure for civil servants – must now prepare a new budget within its first 100 days.
Analysts suggest that if revenue collection targets for the upcoming financial year are not met, the new administration may find it difficult to balance the books.
The BNP government, led by Tarique Rahman, will be required to announce a new budget just three and a half months after taking office – a budget for which the interim government has already finalised the ministry-wise allocations.
Despite this, economist Zahid Hussain believes the public will still view the upcoming June budget as the BNP administration's first true fiscal test.
He remarked that the BNP must make several key political decisions in its very first budget. "However, balancing the figures will prove a significant challenge for the new administration."
Zahid noted that the BNP has made extensive promises that must be incorporated into this initial budget, including a commitment to increase allocations for health and education to 5% of GDP.
"Furthermore, they have pledged to introduce 'Family Cards' and waive agricultural loans of up to Tk10,000. These initiatives will require direct and substantial government expenditure," he said.
Zahid continued, "At the same time, the BNP has pledged to move away from a debt-reliant economy, which implies keeping the budget deficit within strict limits. The party has also committed to introducing a new salary structure for civil servants.
"Even if only one-third of the recommended new pay scale is implemented, an additional Tk30,000 crore will be required. Therefore, unless revenue collection is significantly increased, the new government will also find itself forced to depend on borrowing.
"Furthermore, if government borrowing rises, credit flow to the private sector will be further constrained – a figure that has already plummeted below 6%."
Mahbub Ahmed said that to fulfil the BNP's pledge of creating 1 crore jobs over the next five years, the new government must take effective measures to increase revenue collection while reducing debt dependency. He emphasised that the government must focus on securing the actual share of GDP that should be collected as tax.
He further noted that the interim government cancelled numerous projects and suspended funding for many others, leaving them half-finished. The new administration, Mahbub said, will need to complete projects where funds have already been spent and which promise genuine public benefit.
"This, however, will require additional financing. If this cannot be achieved through enhanced revenue collection, they too will be forced to rely on borrowing."
Mahbub further said, "To implement the BNP's commitments – including the new salary structure for civil servants, and the introduction of 'Agriculture Cards' and 'Family Cards' – vast sums of money will be required.
"While the current level of our national debt may not yet be a cause for panic, there is certainly enough reason for concern."
Towfiqul Islam Khan said that the new government must develop a pragmatic estimate for its debt repayment schedule.
"This is because, year after year, the actual amount required for foreign debt servicing consistently exceeds the projections made by the External Resources Division (ERD)."
He further noted that upon taking office, the new administration must immediately revisit the revised budget to make the interim government's projections more realistic.
"Furthermore, they must adopt a pragmatic action plan for the new budget to fulfil their electoral manifesto. Failing this, public disillusionment could set in as early as the announcement of the first budget."
Towfiqul also advised the new government to seek opportunities to renegotiate any loans taken by the previous Awami League administration where such terms are feasible.
In an interview with The Hindu, BNP Secretary General Mirza Fakhrul Islam Alamgir said the new government must begin its tenure by addressing the "burden of debt" left behind by the Awami League administration.
He emphasised the need to re-evaluate various mega-projects to identify areas of financial wastage. "Of these projects, we will retain only those that serve the national interests."
