A significant reliance on debt financing has emerged as a central macroeconomic challenge for Bangladesh over the past decade.
To fund infrastructure projects, cover public subsidies, maintain social safety nets, and meet routine operating costs, successive administrations have consistently used deficit financing models.
However, newly released treasury data has raised concerns among economic analysts regarding the long-term sustainability of this debt growth and its potential impact on domestic investment, retail inflation, employment generation, and sovereign fiscal stability.
According to the Ministry of Finance's latest Medium-Term Macroeconomic Policy Statement (MTMPS), if current borrowing patterns persist, Bangladesh’s total public debt stock is projected to reach Tk3,377,600 crore within the next three fiscal years.
Over the same period, annual debt servicing costs are expected to climb to Tk162,700 crore, potentially redirecting critical resources away from public development sectors to cover legacy liabilities.
Public borrowing volumes experienced a sharp increase in early 2026. When the current interim administration assumed office in February 2026, total public debt stood at just over Tk2,300,000 crore.
By the end of March 2026, that figure climbed toward Tk2,400,000 crore.
The Finance Division's medium-term outlook indicates that total public debt will reach Tk2,633,100 crore by the conclusion of FY27. This liability is projected to expand to Tk2,956,700 crore in FY28, before reaching Tk3,377,600 crore by the end of FY29.
This pathway represents a net increase of more than Tk1,000,000 crore in total public debt over a 36-month period.
Structurally, the projected debt portfolio will consist of approximately Tk1,880,000 crore from domestic banking and non-banking sources, alongside Tk15,000 crore in external foreign debt.
The root cause
Macroeconomists point out that the primary structural driver of this debt growth is low domestic revenue mobilization.
Bangladesh continues to record one of the lowest tax-to-GDP ratios in South Asia, meaning revenue generation has not kept pace with broader economic expansion.
Over the past five fiscal years, while gross government revenues grew by 35%, total public debt liabilities increased by 42%.
Consequently, tax revenues remain insufficient to fully cover standard administrative outlays, civil service payrolls, and pensions, forcing the treasury to borrow extensively from domestic and international markets to close the budget deficit.
This persistent borrowing has led to a sharp increase in annual interest obligations.
The proposed budget for FY27 sets aside Tk127,500 crore for interest payments, which represents a major component of total non-development spending.
The Finance Division projects that by FY29, annual interest expenses will climb to Tk162,700 crore, an increase of over Tk35,000 crore within two years.
However, independent economists and former treasury officials have questioned the realism of the FY27 interest allocation.
While actual interest spending reached Tk136,100 crore in FY25 and is projected to hit nearly Tk135,000 crore by the end of FY26, the government's proposed allocation of Tk127,500 crore for the upcoming year represents an unaligned decrease amid rising total debt.
The government's heavy reliance on domestic banking networks to finance the budget deficit risks creating a "crowding-out effect" within the local financial system.
As commercial banks often prioritize low-risk government treasury bills and bonds over private credit lines, industrial entrepreneurs and commercial enterprises may face tighter credit conditions.
According to the Finance Division’s Fiscal Risk Assessment Statement, if current public borrowing trends continue, total private sector credit availability could decrease by up to Tk85,700 crore by 2029, potentially slowing new factory installations, manufacturing output, and employment generation.
This potential contraction in private sector credit could impact long-term GDP growth.
While the government's long-term plan targets a 7.5% GDP growth rate by 2029, the Fiscal Risk Assessment Statement suggests that persistent revenue deficits and high debt service costs could lower actual growth to 6.45%.
A 1.05% reduction in real GDP expansion would likely correspond to slower job creation, reduced industrial output, and lower household income growth across the economy.
Mitigating strategic risks
Currently, the International Monetary Fund (IMF) maintains a "medium risk" rating for Bangladesh's sovereign debt sustainability, while global credit rating agencies continue to monitor the country's macroeconomic indicators closely.
Former Finance Secretary and Comptroller and Auditor General (CAG) Mohammad Muslim Chowdhury noted that public borrowing is manageable if funds are directed into highly productive, capacity-building economic sectors that support private enterprise; however, project delays, cost overruns, or inefficient resource allocation can quickly strain fiscal management.
Furthermore, unexpected external shocks, such as a hypothetical 30% increase in global energy prices, could add to these fiscal pressures by raising national subsidy costs, widening the budget deficit, and requiring additional deficit financing.