Bangladesh’s fiscal stability is coming under increasing strain as government revenues fail to keep pace with soaring expenditures and rising debt obligations, raising concerns among economists and policymakers about the sustainability of public finances. Recent economic indicators suggest that the government is struggling to balance shrinking income with escalating repayment commitments, creating a challenging outlook for the country’s macroeconomic stability.
According to data and analysis cited by The Daily Industry, Bangladesh is entering a critical fiscal phase where weak revenue mobilization, heavy spending on large infrastructure projects, and growing foreign debt repayments are converging to create unprecedented pressure on the national budget.
Revenue Shortfall Deepens Fiscal Stress: Government income has come under severe pressure at a time when expenditure continues largely unchecked. Analysts warn that the widening gap between revenue collection and spending could trigger deeper economic vulnerabilities if corrective measures are not taken urgently. Data from the Economic Relations Division (ERD) shows that Bangladesh’s debt-to-revenue ratio rose to 16.92 percent at the end of fiscal year 2024-25, up from 16.53 percent a year earlier. Economists caution that once this ratio crosses 18 percent, the country may enter a high-risk fiscal zone - a threshold also identified by the International Monetary Fund (IMF) as a warning level.
“The current trajectory indicates growing repayment stress,” said analysts quoted by The Daily Industry. “Without rapid growth in revenue collection, debt servicing will increasingly crowd out essential
public spending.” The government’s fiscal challenge has intensified as debt levels rise faster than economic output. The debt-to-GDP ratio climbed to 18.99 percent in FY2024-25, compared with 17.03 percent the previous year, signaling a gradual but persistent increase in public liabilities.
External Debt Surges Amid Currency Pressure: Bangladesh’s medium- and long-term external debt reached $77.279 billion as of June 30, 2025, up sharply from $68.822 billion a year earlier - an increase of $8.457 billion within just twelve months.
During this period, the government borrowed a net $5.832 billion from external sources. Additionally, depreciation of the local currency against the US dollar added approximately $2.51 billion to the debt stock, further intensifying repayment obligations. Economists say exchange rate volatility has become a major hidden driver of debt growth. As the taka weakens, repayment costs automatically rise, even without additional borrowing.
At the same time, interest payments are rising steadily. The interest payment ratio increased to 2.96 percent, while the combined ratio of principal and interest payments reached 8.12 percent - a level that analysts say is beginning to constrain fiscal flexibility.
Debt Growth Over 15 Years Raises Alarm: A London-based research assessment highlighted the rapid expansion of Bangladesh’s external debt over the past decade and a half. External debt stood at $23.5 billion in 2009 but surged to nearly $112 billion by 2025 - a staggering increase of about 377 percent. This sharp rise reflects Bangladesh’s reliance on debt-financed infrastructure development and budgetary support during periods of economic stress. While borrowing helped sustain growth earlier, economists now warn that returns from many projects have not materialized quickly enough to offset repayment pressures.
Despite mounting debt, revenue growth has lagged significantly. Experts cited by The Daily Industry argue that wasteful spending, project inefficiencies, and corruption have widened fiscal deficits year after year.
Massive Revenue Gap Continue: National Board of Revenue (NBR) sources indicate that during the first seven months of the current fiscal year (July-January FY2025-26), the revenue deficit exceeded Tk 60,000 crore.
Against a collection target of Tk 283,751 crore, all three major revenue streams fell short: Income tax revenue recorded the largest deficit at Tk 28,925 crore. Import-stage taxes fell short by Tk 15,683 crore. Value-added tax (VAT) collections missed the target by Tk 15,506 crore.Economists believe such persistent shortfalls could create serious challenges even for future elected governments, limiting fiscal space for development and social spending. The previous fiscal year also witnessed a large revenue deficit of Tk 92,626 crore. Political instability, slowing business activity, and disruptions within the tax administration contributed significantly to the shortfall.
IMF Warning Signals Mounting Repayment Risks: According to the IMF’s Article IV Consultation Report cited by The Daily Industry, Bangladesh faces approximately $30 billion in debt repayments - including both principal and interest - by the end of the current fiscal year.
Total public debt reached around $188.79 billion in FY2024-25, equivalent to roughly 41 percent of GDP. Of this amount, domestic debt accounts for $101.24 billion, while external debt stands at $87.55 billion. Projections suggest that if current trends continue, the debt-to-GDP ratio could exceed 110 percent by 2030 - a scenario economist describe as deeply concerning for a developing economy with limited fiscal buffers.
One of the biggest structural weaknesses remains Bangladesh’s low tax-to-GDP ratio, currently below 7 percent. This significantly limits the government’s ability to manage rising debt obligations.
Finance Minister Amir Khasru Mahmud Chowdhury has stated that the government aims to raise the tax-to-GDP ratio to 8 percent in the upcoming national budget, though analysts question whether such improvement can be achieved quickly enough.
Cost Overruns and Governance Failures: A research review examining 42 major infrastructure projects undertaken between 2009 and 2025 revealed significant inefficiencies. Among them: 29 projects experienced average cost increases of 70.3 percent. Nearly 35 percent of project expenditures were lost due to corruption and inefficiency. Projects implemented through direct government-to-government agreements were more than 400 percent costlier than competitively tendered projects.
Researchers warned that if corruption, overpricing, and weak oversight persist, Bangladesh’s debt-to-GDP ratio could rise to 70 percent by 2030. The period between 2028 and 2032 has been identified as particularly risky for fiscal sustainability. Record Loan Repayments Add Immediate Pressure: ERD data shows Bangladesh repaid a record $4.09 billion in external loans during the last fiscal year - $740 million more than the previous year. Rising global interest rates significantly increased repayment costs.
Officials expect repayments to exceed $4.5 billion in the current fiscal year, adding further pressure on foreign exchange reserves and fiscal management.
Economic analysts told The Daily Industry that the situation remains manageable for now but requires urgent reforms.
Experts Call for Fiscal Discipline: Economists emphasize that Bangladesh’s debt challenge is not solely about borrowing levels but about how effectively borrowed funds are utilized.
Former World Bank Dhaka office lead economist Dr. Zahid Hussain stressed the importance of ensuring productive use of loans.
“Our debt is increasing, and repayments are rising simultaneously,” he said. “Within the next one to two years, annual repayments may reach $5-6 billion. If revenue collection and foreign currency inflows do not increase, repayment pressure will intensify and could create severe economic distress. Ensuring productivity from debt-financed projects is essential.”
Analysts argue that improving revenue administration, reducing unnecessary expenditures, ensuring transparent procurement processes, and strengthening project accountability are critical to avoiding a future debt crisis.
A Narrow Window for Reform: Despite growing risks, economists believe Bangladesh still has an opportunity to stabilize its fiscal outlook if reforms are implemented quickly. Stronger tax compliance, export diversification, improved governance in public spending, and disciplined borrowing could help restore balance.
However, failure to address structural weaknesses - particularly chronic revenue shortfalls and inefficient project execution - may push the economy toward a more difficult adjustment phase in the coming years. As fiscal pressures mount and repayment obligations accelerate, Bangladesh’s economic policymakers now face a defining challenge: restoring discipline between income and expenditure before rising debt turns from a manageable burden into a full-scale economic crisis.
