A persistent increase in internal and external government borrowing and the consequent pressure on loan repayment pose a threat to the economy. While economists have for long spoken of negative impacts of the growing government debt, the authorities appear to have ignored the risks and continued to borrow excessively. The high-deficit budget for the ongoing financial year also testifies to this. The government aims at covering almost the entire development expenditure with internal and external borrowing while the highest allocation of the budget, 14.2 per cent, is reserved for loan repayment. This amply shows the likely debt distress that economists and experts have for long warned of. The government also now appears to admit to risks of growing debt. The medium-term debt management strategy for 2025鈥�2027 financial years, published by the Finance Division, identifies half a dozen risks that are likely to have negative impact on the management of borrowing liabilities amidst pressure on the foreign exchange reserve. The document lists inflation, exchange rate, banking and non-banking financial sector, contingent liability, fiscal position and external factors as macroeconomic risks that may have implications for debt management.
A low revenue generation against a falling tax-to-GDP ratio has constrained and will continue to pressure the government鈥檚 debt management ability. According to the strategy, revenue shortfall and the overshooting of expenditures will require additional borrowing from local and foreign sources, which in turn will weaken the government鈥檚 debt management ability. The National Board of Revenue has failed to achieve revenue targets in 12 financial years until the 2023 financial year despite mostly downward revisions. Besides borrowing for development expenditure, borrowing for debt repayment has also increased, with the total debt as a percentage of gross domestic product reaching 36.0 per cent in the 2023 financial year. External debt, which poses the gravest risk as it needs repayment in the dollar, has, meanwhile, mounted, with 44 per cent of the debt being external. Such an increase in external debt, from $23.5 billion in June 2009 to $100.6 billion in December 2023, makes foreign debt management challenging, especially because of the depreciation of the local currency, an increase in contingent liabilities and external factors. The Economic Relations Division has already calculated the foreign loan repayment at Tk 57,800 crore in the current financial year, compared with the past year鈥檚 Tk 37,775 crore. The outstanding contingent liability of the government has also increased by 26 per cent with fresh guarantees extended to struggling power, fertiliser and aviation sectors.
The debt management ability of the government is likely to worsen in two to three years with the maturity of a number of short-term loans, known as non-concessional loans, and debt repayment is going to eat up a major portion of the revenue and cause more debt. The government, which is planning to form an autonomous body for debt management, must, therefore, address the risks and ensure a better implementation of the debt management policy.
