Interest payments projected to be Tk2.5 lakh crore over next two fiscal years

Bangladesh's total interest payment on loans for the next two fiscal years is set to reach Tk2.5 lakh crore, as stated in the government's 'Medium Term Macroeconomic Policy Statement for 2023-24 to 2025-26'.

The breakdown reveals Tk1.2 lakh crore slated for the 2024-25 fiscal year and Tk1.4 lakh crore for 2025-26.

Domestically, the interest payments are projected to be Tk1.01 lakh crore in 2024-25 and increase to Tk1.2 lakh crore in 2025-26.

Conversely, payments on external loans are significantly lower, with Tk14,600 crore due in 2024-25 and Tk17,800 crore in 2025-26.

The government aims to reduce its total expenditure on interest payments by the end of the 2025-26 fiscal year. Historically, in FY2020-21, 15.4% of total expenditures were devoted to interest payments. This figure is forecasted to decrease to 13.5% by the end of FY2025-26.

In more detail, domestic interest payments are expected to drop from 14.4% of total government expenditures in FY2020-21 to 11.6% in FY2024-25, returning to 11.8% in FY2025-26. In contrast, external interest payments, which comprised 0.9% of total expenditures in FY2020-21, are anticipated to rise, reaching 1.7% by FY2025-26.

This increase is attributed partly to the depreciation of the taka against the US dollar and heightened external financing needs. The prevalence of National Savings Certificates in the debt portfolio, a traditionally high-interest option, has also been a factor in elevated interest costs. However, a projected decrease in the share of these instruments is expected to bring down the implicit interest rate of domestic financing.

The implicit domestic interest rate is anticipated to improve from 10% in FY 2020-21 to 9 percent in FY2024-25 and FY2025-26. Meanwhile, external borrowings, influenced by global interest rate hikes and local currency depreciation, are likely to increase the external implicit interest rate from one percent in FY2020-21 to two percent in FY2025-26.

Inflationary pressures have kept the yield of marketable securities high, maintaining an overall implicit interest rate of around six percent, which is expected to stay consistent over the medium term.

To address the projected fiscal deficits of Tk2.8 lakh crore in 2024-25 and Tk3.2 lakh crore in 2025-26, the government plans to secure Tk1.2 lakh crore from external sources in the next fiscal and Tk1.3 lakh crore in 2025-26, along with Tk1.7 lakh crore and Tk1.9 lakh crore from domestic sources, respectively.