How rising debt-servicing threatens Bangladesh’s economy, and the way forward
With the exchange rate weakening from Tk84 to over Tk123 per US dollar in four years, more local currency is now required to repay the same amount of foreign debt, further straining the budget.
Bangladesh's debt-servicing burden is increasing sharply, putting pressure on public finances and limiting fiscal space.
Debt-servicing refers to the government's routine payments of interest and principal on its domestic and foreign loans, to keep its debt obligations current.
The growing cost of interest payments is emerging as a major policy challenge that requires urgent action.
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Impacts of rising debt-servicin
The country may face vulnerabilities in the coming years as its external debt stock and interest obligations continue to rise, according to economist Selim Jahan, former director of Human Development Report Office, UNDP.
He notes that Bangladesh is set to lose grants and concessional loans after its LDC graduation next year, forcing it to rely more on costlier commercial borrowing with higher interest rates and shorter repayment periods.
He adds that global monetary tightening, domestic inflation and the depreciation of the taka have increased the cost of borrowing.
Banks have raised interest rates, pushing government interest payments to new levels.
With the exchange rate weakening from Tk84 to over Tk123 per US dollar in four years, more local currency is now required to repay the same amount of foreign debt, further straining the budget.
What can be done
Selim Jahan says Bangladesh needs a strong reform programme to stabilise its debt-servicing outlook.
He stresses the need to raise the tax–GDP ratio through greater dependence on direct taxes and institutional reforms in tax administration
He also emphasises export diversification, import rationalisation and measures to channel more remittances to strengthen foreign reserves and reduce reliance on foreign loans.
He recommends tighter expenditure controls, including postponing new physical infrastructure projects (except in education and health), reducing non-essential spending, and curbing discretionary costs.He also calls for prudent debt management, careful project selection and improved implementation
According to him, large and prestige-driven projects without clear economic or social returns should be halted.
He says the next government must outline a clear strategy to ensure long-term debt sustainability.
