For the first time, Bangladesh's outstanding government debt has surged past the Tk 21 trillion mark, pushed upward by chronically weak revenue collection and years of ambitious development spending.

The amount reached Tk 21.44 trillion at the end of June, nearly 14 percent higher than Tk 18.89 trillion a year earlier, according to the Finance Division's debt bulletin released on Thursday.

Foreign borrowing stood at Tk 9.49 trillion, or 44.27 percent of the total, continuing a steady rise over the past five years. In 2021, foreign debt was Tk 4.20 trillion, roughly 37 percent of total liabilities.

Domestic borrowing also grew, rising around 11 percent to Tk 11.95 trillion from Tk 10.76 trillion last fiscal year. In 2021, the figure was Tk 7.22 trillion.

The trend shows that foreign borrowing has expanded at more than twice the pace of domestic debt.

Finance ministry officials attributed the surge to post-pandemic budgetary support from development partners and heavy disbursements for mega projects, including the Rooppur Nuclear Power Plant, Dhaka Metro Rail, and the Matarbari coal-fired power plant.

"The current trend of government borrowing is alarming for Bangladesh," said Prof Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue.

Sluggish collection has left the revenue budget with virtually no surplus, forcing the government to rely on both domestic and external loans to finance development spending, he told The Daily Star.

"As a result, overall debt is rising. What is worrying is that interest rates on domestic borrowing remain high. At the same time, foreign loans carry little to no grant element and are largely non-concessional, coming with high interest rates, short repayment periods, and limited grace periods," he said.

These conditions are sharply increasing the country's debt-servicing burden, he added.

An Asian Development Bank report last month noted that Bangladesh has recorded the fastest rise in foreign debt among South Asian nations, with public and publicly guaranteed loans more than tripling in 13 years.

The growing stock of debt has pushed interest payments upward as well. Last fiscal year, the government paid Tk 1,32,460 crore in interest, a 17 percent year-on-year increase.

Interest payments on foreign loans jumped 21 percent, while domestic loan payments rose 16 percent. In 2016, interest payments were Tk 31,669 crore; by 2021, the amount had almost doubled to Tk 63,823 crore. Interest payments on loans taken from commercial banks through treasury bills and bonds rose 43 percent year-on-year.

The debt bulletin said Bangladesh's external debt-to-GDP ratio remains moderate and within the IMF's "safe zone", but several economic indicators now demand caution.

Ensuring long-term sustainability, it warned, will require more disciplined debt management, rigorous scrutiny of new development projects, stronger improvements in implementation efficiency, accelerated domestic resource mobilisation, and deeper efforts to expand and diversify export earnings.

The International Monetary Fund has imposed a ceiling on Bangladesh's foreign borrowing for FY26, citing mounting risks in external debt.

Under the cap, the country may borrow a maximum of $8.44 billion this fiscal year, including $1.91 billion in the first quarter and $3.34 billion in the first half. The IMF will monitor such borrowing quarterly under its loan programme.

A senior finance ministry official said the ceiling stems from the IMF's latest Debt Sustainability Analysis (DSA), which reclassified Bangladesh as a "moderate-risk" country in FY23 and FY24.

The downgrade from "low risk" reflects growing repayment pressures relative to exports and revenues.

According to the DSA, Bangladesh's debt-to-export ratio surged to 162.7 percent in FY24, far above the IMF's earlier projection of 116–118 percent.

The debt service-to-revenue ratio has also risen, further shrinking the government's fiscal space for new borrowing. The IMF noted that stress tests show these ratios consistently exceeding thresholds due to a downward revision in export figures.

Prof Mustafizur stressed that the next government must prioritise domestic resource mobilisation, which is currently about half the South Asian average, through stronger technology,

training, and financing for the National Board of Revenue, alongside improved governance.

Future borrowing, he said, must be undertaken with far greater caution, carefully weighing interest rates, sources, repayment schedules, and grace periods to avoid a cycle in which new loans only serve old debts.

UNIFIED DEBT MANAGEMENT

Bangladesh is now preparing to establish a unified Debt Management Office to strengthen public debt oversight and reduce fiscal and operational risks, following recommendations from the IMF and the World Bank.

The multilateral lenders, which are providing technical assistance, presented their proposals at a workshop earlier this month at the Finance Division.

A joint mission observed that debt management responsibilities are currently scattered across multiple agencies, creating coordination gaps, inconsistent data, and difficulties in formulating and executing a comprehensive strategy, according to a Finance Division statement.

It noted the absence of a centralised, audited debt database and a formal cash flow forecasting mechanism—both essential for informed and cost-effective borrowing.

The mission proposed consolidating all government and government-guaranteed debt functions under the Finance Division, beginning with restructuring the Treasury and Debt Management Wing.

In the initial phase, the DMO would oversee domestic debt issuance, develop annual borrowing plans, coordinate auction calendars, conduct portfolio risk assessments, and build a unified debt database by integrating existing systems.

A clear legal framework would be needed to define borrowing authority, accountability, reporting obligations, and transparency standards. The mission recommended specialised staffing -- particularly experts in capital markets, pricing, settlement operations, and risk management -- potentially sourced from Bangladesh Bank, commercial banks, and the capital market.

To retain such expertise, the government would need to introduce competitive compensation and career development paths.

Over the medium term, the DMO could evolve into a more autonomous entity, expanding its mandate to include contingent liability oversight and investor relations. Establishing the office will require strong political commitment, phased institutional restructuring, investments in modern IT systems, and firm coordination across agencies.

Once operational, the unified DMO is expected to bolster market confidence, lower financing costs and risks, and strengthen Bangladesh's long-term fiscal health, the statement said.