Bangladesh Debt: $30 Billion Servicing Costs & IMF Warnings | Revenue Risks & Rollover Concerns

Bangladesh is facing increasing pressure to manage its growing debt burden, with over $30 billion projected to be spent on debt servicing this fiscal year. The figures, released by the International Monetary Fund (IMF), highlight a concerning trend of rising debt and potential challenges in meeting future financial obligations.

Rising Debt Servicing Costs

The IMF estimates that public debt servicing will reach $30.59 billion in the current fiscal year, an increase from the previous $26.63 billion. This figure is expected to continue climbing, reaching $33.84 billion in the next fiscal year. Bangladesh’s total public debt currently stands at $188.79 billion, representing 41 percent of the country’s GDP as of the 2024-25 fiscal year, up from 39 percent the year prior.

Domestic vs. Foreign Debt

The country’s debt is comprised of $101.24 billion in domestic borrowing and $87.55 billion in foreign loans. In the 2024-25 fiscal year, repayments on domestic debt accounted for 4.2 percent of GDP, while external debt servicing remained at 1.2 percent. However, the strain on government revenue is significant, with servicing domestic debt consuming 89.4 percent of all government revenues.

Did You Know? Loan repayments are currently outpacing both export earnings and government revenue in Bangladesh.

Rollover Risks and Revenue Collection

The IMF has cautioned that Bangladesh faces heightened “rollover risks” – the possibility of difficulty and increased expense in securing new loans to repay maturing debts – unless significant improvements are made to revenue collection. The elevated debt service-to-revenue ratio is a key concern, and the IMF notes that all public debt indicators are trending upwards due to higher borrowing costs and slower economic growth.

The Tax-to-GDP Ratio

Bangladesh’s current tax-to-GDP ratio remains below 7 percent, limiting its capacity to effectively manage its debt. Finance Minister Amir Khosru Mahmud Chowdhury has announced a goal to raise this ratio to 8 percent in the upcoming budget. While tax reforms could slightly improve the debt service-to-revenue ratio by fiscal year 2026–27, the IMF warns that a major natural disaster could see the ratio surge to over 110 percent of GDP by 2030.

Expert Insight: The IMF’s assessment underscores the critical need for Bangladesh to strengthen its revenue base to avoid a potentially unsustainable debt cycle. Reliance on domestic borrowing, while currently substantial, carries risks of crowding out private sector investment and straining the financial system.

Potential Future Scenarios

If revenue collection efforts fall short, or if the banking sector requires central bank support for insolvent banks, Bangladesh could face currency devaluation and inflation. Delayed banking sector reforms or slow progress in boosting revenues – currently projected to reach only 12.2 percent of GDP – could negatively impact economic activity in the near and medium term. Diversifying the investor base for government securities and establishing a robust liability management framework are seen as potential mitigation strategies.

Frequently Asked Questions

What is a “rollover risk”?

A “rollover risk” refers to the potential difficulty and increased cost a government may face when attempting to borrow new money to repay existing debts as they mature.

What is a primary dealer system?

A primary dealer system is an arrangement where a select group of financial institutions are authorized to trade directly with the government to facilitate the issuance and distribution of government securities.

What was the previous assessment of Bangladesh’s debt risk?

Former finance adviser Salehuddin Ahmed noted that Bangladesh’s debt risk has been downgraded from low to moderate, though the current debt level is still considered tolerable by IMF benchmarks.

Given these challenges, what steps do you believe Bangladesh should prioritize to ensure long-term economic stability?