Payments consumed almost half of the national budget, limiting government spending on development and social programmes
The country spent more than $26 billion on servicing domestic and foreign debt in fiscal year (FY) 2023-24, nearly half of its national budget, leaving limited room for development and social spending, according to a study by a private think tank.
The pressure of debt servicing is mounting due to the rising debt stock and higher interest payments, said the study by Research and Policy Integration for Development (RAPID), noting that the growing burden is increasingly squeezing public expenditure.
"Rising debt-servicing costs against weak domestic revenue mobilisation effort risk undermining development and macroeconomic stability," said MA Razzaque, chairman of RAPID, yesterday.
At a seminar in Dhaka on socioeconomic priorities for the next government, Razzaque laid out 12 challenges for the next government, ranging from debt servicing and graduation from the least developed country club to inflation control, limited social spending, energy security and unemployment.
In FY24, total debt stock stood at $174 billion, equal to 38.5 percent of gross domestic product (GDP). In that year, domestic and external debt servicing was $26.26 billion.
"If we convert Bangladesh's domestic revenue into dollars, only 36 percent remains after debt servicing," Razzaque said, citing a joint World Bank and International Monetary Fund (IMF) study conducted as part of a debt sustainability analysis.
"If we consider total government revenue, including NBR revenue plus non-tax revenue, this share stands at over 31 percent."
This means that even when the government wants to spend more on development, debt servicing appears as a heavy financial burden.
Over the past four to five years, development budgets have often been nominal in real terms, with a large share of government expenditure going towards debt payments.
"Even though we talk about foreign debt, the borrowing from the domestic sector has also increased very rapidly, especially between fiscal years 2016 and 2024," said Razzaque.
During this period, domestic borrowing has grown at an average annual rate of 18 percent.
"One of the next government's primary tasks will be to rein in this fiscal pressure. Otherwise, it will have little room to operate or pursue its priorities," he said.
The economist also warned that the next elected government may have little scope to meaningfully revise the budget inherited from its predecessor due to the sluggish pace of revenue collection.
"If we fail to accelerate revenue mobilisation, much of our future development will be seriously hindered," he said.
He described current revenue trends as one of the biggest risks facing the next government, limiting its ability to introduce any major fiscal changes.
Chronic underinvestment in health, education and social protection, he added, should top the agenda when the new government prepares its first budget, expected between February and June.
Bangladesh's tax-to-GDP ratio has fallen to around 7 percent, a level Razzaque called "alarmingly low".
Comparable economies such as India, China, Nepal, Malaysia, Cambodia and Thailand collect far more, while Bangladesh's tax-to-GDP ratio also trails the average for lower-middle-income countries.
He said stronger revenue collection matters not only for development spending but for reducing inequality, with fair taxation of higher-income groups and targeted support for poorer communities helping to narrow social gaps.
Referring to an upcoming RAPID study, Razzaque said 54 percent of national wealth is held by just one percent of the population, a concentration he said could threaten social stability.
He added that the first test for the next government will be managing immediate crises, which may restrict attention to longer-term goals.
"Early challenges, including inflation, banking stability, reserves, and LDC graduation, will shape the government's term," he said.
Acknowledging the low tax-to-GDP ratio, NBR Chairman Md Abdur Rahman Khan said that developed countries can allocate around five percent of GDP to health spending after collecting revenue equal to 30 to 40 percent of their GDP.
"But with Bangladesh generating only six percent of GDP in revenue, how can we spend five percent on health? If expenditure exceeds income, the debt burden naturally increases. That is why we are trying to boost revenue through modernising our management systems," he said.
At the seminar, business leader Anwar-Ul Alam Chowdhury said businesspeople are facing various difficulties during the ongoing interim government period, yet political actors appear disengaged.
"They seem focused only on getting back into power. If this mindset continues, Bangladesh will lose the opportunities now emerging and fall further behind where it currently stands," he said.
Former caretaker government adviser Rasheda K Choudhury urged higher investment in health and education. "If we do not step up investment in these sectors, we will have to face the consequences," she said.
She also called for stronger action against corruption and improvements in governance.
Among others, Prof Mohammad Mainul Islam and Prof Rashed Al Mahmud Titumir of the University of Dhaka; Shawkat Hossain, head of online, Prothom Alo; and Doulot Akter Mala, president of the Economic Reporters' Forum, also spoke at the event.
M Abu Eusuf, executive director of RAPID, moderated the programme.
