Rising Public Debt Clips The Wings

The woe called rising public debt Makes difficult choices amid revenue regret.

Govt is planning to seek $2 billion foreign credit to mitigate challenges of energy security caused by ongoing war. Meanwhile, govt's debt service management has already crossed $3 billion matching the incoming flow of aid this fiscal year. Asian Development Bank hinted that it [would] provide credit to meet the emerging need from oil price shock. Ailing economy needs further cash to recover. And it is coming from foreign credit. Bangladesh's overall foreign credit stands at $113.51 billion at the end of December 2025. Govt borrowing accounts for 82% of the total foreign credit. Private sector accounts for the rest.(Source: Bangladesh Bank)

According to a study by IMF,global public debt reached 93.9% of GDP and projected to cross 100% by 2028(see "High Debt,Hard Choices" by Era Dabla-Norris and Rodrigo Valdes,March 2026,IMF,https://www.imf.org/en/publications/fandd/issues/2026/03/high-debt-hard-choices-era-dabla-norris). As the public debt rises,so does the interest payment. This fiscal year alone govt paid $950 million as interest payment. By the end of this fiscal year it would cross the billion [dollar] mark. The situation makes the task of resource mobilization even harder. The IMF study also shows that interest payments take away 21% of tax revenues in low income countries. This money could have been spent on social security programs and development programs.

Tax revenues that help financing the development and social security programs are not in a good shape. Against a target of Tk 3.25 trillion ,NBR managed to collect Tk 2.54 trillion of revenue till February this year, registering a shortfall of Tk 714 billion(Source: NBR). This year revenue target is set at Tk 5.54 trillion. Failure to meet revenue target means the money has to come from somewhere else. Borrowing is a popular option. As Bangladesh is scheduled to graduate from LDC countries within two years, overseas borrowing will be costly for us. Battered economy, poor credit ratings have already made costly the foreign credit. Too much borrowing from domestic sources translates into less credit to private sector. What is worrying too much borrowing amid high debt and inadequate revenue has consequences. The IMF study cautions:

"But today, the era of easy choices is over. Every dollar a government borrows without matching revenue implies higher taxes or lower spending in the future, at least to cover the additional interest the new debt generates. Beyond a certain point, more borrowing forces painful decisions—through austerity, inflation, financial repression, or even default."

Amid the grim fiscal situation, govt undertakes ambitious social security programs where chances of leakages are very high. Previous social security programs were not leakages free. Given no dramatic improvement in governance in the last one year, why will these new ones be different? Meanwhile, borrowed money will finance the deficit budget and tax revenues will go for paying the rising debt instead of development or social security programs. Earlier we used to take debt to finance various programs [aimed] for people and capacity building. Gradually we are entering into a phase where we need debt to pay older debts and interests. Social welfare, capacity building, human development and investment in infrastructure are [going to be] some of the badly hit areas. We need to check our spending and require serious commitment to reforms.