Bangladesh has slipped into a form of debt trap: NBR chief
Reiterating that debt pressures are already constraining the economy, the NBR chief said Bangladesh must act decisively
Highlights:
- Domestic revenue must rise to reduce reliance on borrowing
- Tax-GDP ratio has fallen to around 7% from above 10%
- Revenue growth remains far below economic needs
- Weak mobilisation, falling imports and tax leakage deepen fiscal strain
- NBR pushes stricter enforcement and wider digitalisation
- Debt servicing now ranks as the second-largest budget expense
National Board of Revenue (NBR) Chairman Md Abdur Rahman Khan today (8 December) said Bangladesh has already slipped into a form of debt trap, and the nation must confront this uncomfortable truth if it wants to restore stability.
He said all indicators point to the same conclusion. "We have already gone into a long-term debt trajectory. The sooner we accept this reality, the sooner we can move forward."
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Over the past decade, researchers and economists have expressed concern over whether Bangladesh has fallen into a "debt trap", analysing the country's loan-dependent development model and low revenue collection. For the first time, however, a top-level government official has openly raised the issue and acknowledged that Bangladesh is indeed caught in a debt trap.
NBR chief said this after Professor Mustafizur Rahman, Distinguished Fellow of the Centre for Policy Dialogue (CPD), cautioned that without decisive action, Bangladesh "could face a serious debt-servicing burden."
"We may enter a debt trap, which will not be good for the country. In the revenue budget, after salaries and pensions, the second-largest expenditure used to be agriculture and education. Now it is interest payments," Mustafizur Rahman said.
According to the International Debt Report 2025 released by the World Bank this week, Bangladesh's external debt has risen sharply over the past five years, with total foreign borrowing climbing 42% amid rapidly increasing repayment pressure.
World Bank data shows that by the end of 2024, Bangladesh's total external debt stood at $104.48 billion, up from $73.55 billion in 2020. The calculation includes debts contracted by both the government and the private sector.
According to the report, Bangladesh's external debt amounted to 192% of its export earnings in 2024. Total debt-service payments accounted for 16% of exports during the same period.
The World Bank identifies Bangladesh as one of the countries where external debt repayment pressure is rising rapidly. While the report does not rank countries numerically, Sri Lanka is the only other South Asian nation flagged in a similar category.
According to the finance ministry's accounts, as of the end of last March, Bangladesh's total outstanding debt stood at Tk19,99,928 crore, of which foreign debt amounted to Tk8,41,992 crore.
Mustafizur Rahman said Bangladesh must urgently strengthen revenue mobilisation, improve governance and confront deep-rooted structural challenges to ensure inclusive growth and avoid the risk of falling into a debt trap.
The economist warned that the country is gradually moving towards "a dangerous and obligatory dependency," mainly because of its persistently low revenue-GDP ratio.
He noted that the revenue-GDP ratio has fallen to 7.7% this year, down from around 8% last year and significantly lower than 10.9% in 2015. "If it was 10.9% in 2015, could we not have been more ambitious after 10 more years?" he asked.
The NBR chief echoed this saying, "Despite wide-ranging debates on growth, inflation and economic management, the core challenge remains unchanged: Bangladesh must significantly increase domestic revenue to reduce its dependence on borrowing," he said.
They were speaking at a seminar titled "Bangladesh State of the Economy 2025 and the Sustainable Development Goals: Bangladesh Progress Report 2025" at the NEC Conference Room in the capital's Sher-e-Bangla Nagar area.
The event was organised by the General Economics Division (GED) of the Planning Commission in collaboration with Unicef Bangladesh.
Finance Secretary Md Khairuzzaman Mozumder said this year the budget is smaller for the first time in the country's history. He compared the situation to "asking a thin person to lose even more weight," warning that if excessive budget contraction continues, structural growth problems will emerge.
He said that if inflation stays sustainably low, the budget should gradually move back towards an expansionary mode from the next fiscal year to restore growth.
The finance secretary said the government is deliberately reducing its borrowing from Bangladesh Bank; the Tk1,040 billion borrowed last fiscal year has now fallen significantly. At the same time, emphasis is being placed on taking long-term foreign loans. According to him, as global interest rates fall, Bangladesh's debt stress will also ease.
Bangladesh Bank Governor Ahsan H Mansur said legal reforms are underway to address non-performing loans. Measures have been taken to recover assets both domestically and internationally.
He added that for large industrial enterprises, including those with loan defaults amounting to thousands of crores of taka, a "ring-fencing" policy is being followed to keep operations running. This ensures operational financing without allowing management to take undue advantage, so that workers are not harmed and money returns to the system. However, asset recovery will take time.
Participating in the seminar, Chief Adviser's Press Secretary Shafiqul Alam criticised sections of the business community for sending "mixed signals" and failing to extend adequate support to the government's reform agenda, particularly the port modernisation drive.
NBR Chairman Abdur Rahman Khan said a culture of tax exemptions has grown over decades and has now become a major problem.
The NBR has already formulated a tax expenditure policy, and under the amended law NBR will no longer be able to grant exemptions; only Parliament can do so in future.
Dr Anisuzzaman Chowdhury, Honorable Special Assistant at the Office of the Special Assistant, Ministry of Finance, said poverty usually rises during periods of political instability – when GDP falls, inflation rises or the exchange rate weakens. But in Bangladesh, the exchange rate did not break and inflation has fallen. "So why did poverty suddenly increase? This needs an economic explanation."
He added that the economy has regained stability after the recent unrest, and there has been progress in remittances, trade and macroeconomic discipline. However, he warned that "structural weaknesses remain. Without deep reforms, risks will not diminish. I have only two months left in office. So I must state the unpleasant truth – the economy has stabilised, but it will not be safe without reforms."
Former World Bank lead economist Dr Zahid Hussain said Bangladesh's economy is under strain but has avoided a far worse outcome, stressing that sustained reform and an uninterrupted electoral process are now essential for stability.
He said inflation remains very high, growth is subdued, real wages have fallen, employment has stagnated, exports have weakened in recent months, investment remains depressed and poverty has increased, according to recent World Bank assessments.
"Overall, the negative basket outweighs the positive one. The economy is struggling, and so are livelihoods. But it could have been much worse," he said.
Although efforts over the past 18 months have attempted to correct "self-destructive" economic practices that had become institutionalised in Bangladesh, significant progress remains limited.
Bangladesh State of the Economy 2025
According to the "State of the Economy 2025" report by the General Economics Division (GED) of the Planning Commission, despite regaining macroeconomic stability, Bangladesh's economy remains at a critical juncture.
The first-ever GED State of the Economy report, published yesterday, says the last six months of FY25 show signs of rebounding economic activity, despite ongoing challenges.
Various projections point to a period of slower growth amid economic and political challenges.
Key factors include political uncertainty, subdued investment and industrial activity, high inflation and external global headwinds, particularly given reciprocal tariff measures by the United States.
Projections for FY2025 are generally lower than in previous years, with the World Bank forecasting 3.3 to 4.1% growth and the Asian Development Bank (ADB) projecting 3.9%.
A rebound to around 5.1 to 5.3% is expected in FY2026.
The report warns that foreign direct investment remains critically low and is likely to stay weak in the coming months.
Subdued investment and industrial activity are major contributors to slower growth.
"We identify remittance flows, export performance and growth in the manufacturing sector as key drivers of GDP growth in FY2025, and these factors are expected to contribute further in FY2026."
Stabilisation of imports indicates improving domestic demand, while a rebound in capital machinery imports signals renewed investment confidence.
Export performance remained strong, led by the RMG sector, which retained global competitiveness through compliance upgrades and market diversification.
If Bangladesh can keep inflation under control, restore investor confidence and stabilise the financial sector, stronger growth in FY2025-26 is possible, the report suggests.
However, how far growth translates into job creation, poverty reduction and improved living standards will depend on policy choices, including targeting inflation with accommodative monetary policy, reforming financial intermediation, improving regulatory effectiveness, strengthening governance and enhancing inclusiveness, the report concludes.
