Last month, at a seminar on the state of the economy, the chairman of the National Board of Revenue said that Bangladesh has “already slipped into a form of debt trap.” This alarming statement, echoed by other senior officials, has set the national discourse alight with anxiety. However, before we succumb to the fear of an impending financial crisis, it’s important to closely examine the economic assessment and consider whether the narrative of a debt trap is prematurely ruling out the potential for sovereign alternatives.

Let’s start with the cold, hard numbers. Yes, our external debt has surged by 42 percent in five years to $104.48 billion. Yes, debt servicing is now the second-largest expense in our national budget, after salaries and pensions. These are serious pressures. However, Bangladesh’s debt-to-GDP ratio is within the manageable threshold for an emerging economy.

The true crisis is not the stock of debt, but the anaemic stream of revenue needed to service it. Our tax-to-GDP ratio has collapsed to a perilous 7.7 percent, one of the lowest in the world. Nearly a third of our meagre government income is consumed by debt repayments, starving public investment in health, education, and infrastructure. Furthermore, our external debt now stands at a staggering 192 percent of our export earnings in 2024. Sixteen percent of export earnings is needed just for debt servicing.

This is a liquidity and revenue crisis. The vulnerability stems from a hollowed-out revenue base and also a dangerous dependence on dollar-denominated borrowing. As the taka depreciates, the local currency cost of repaying foreign loans skyrockets, creating a vicious cycle. The solution, therefore, lies not in panic-induced austerity alone, but in a dual strategy: radically strengthening domestic revenue collection and strategically de-risking from the volatile US dollar.

As these debt anxieties peak, the country is deep into a $4.7 billion IMF programme, with the next tranche hanging in the balance. The IMF’s prescriptions—fiscal discipline, a market-driven exchange rate, banking reforms—although presented as technocratic necessities, are also classic tools of geopolitical alignment, keeping countries under the Western-dominated Bretton Woods system.

That is why the debt-trap narrative often instils a fear that paralyses sovereign strategic thinking. It ignores the fact that some successful emerging economies, from India to Indonesia, have not chosen one bloc over another but have skillfully navigated a multipolar world to their advantage. While many in the Global South are rapidly constructing a parallel financial infrastructure, Bangladesh is lagging.

In July 2023, Bangladesh and India launched a landmark mechanism to settle bilateral trade in rupees, bypassing the dollar. Yet, this initiative remains underutilised and half-hearted. Contrast this with India and Russia: in December 2025, they reaffirmed their commitment to settling nearly all their $68.7 billion bilateral trade in national currencies. Where is our aggressive push for settlement in local currencies with our largest trade partners?

Nations insulate their foreign exchange reserves through bilateral swap lines. In early 2025, Indonesia and China renewed a massive swap agreement worth RMB 400 billion. Bangladesh has discussed a yuan swap line with China, but it is yet to materialise.

Over 50 countries, including Bangladesh, have expressed interest in joining BRICS, a bloc whose GDP now surpasses that of the G7. One advantage of joining BRICS is having access to alternatives like the BRICS Bridge—a payment messaging system designed to operate independently of SWIFT. Yet, Bangladesh’s interest has not translated into a decisive strategy to engage with the New Development Bank.

The path forward requires the courage to look beyond the existing narrative. This can include activating and expanding the rupee-taka mechanism with India and initiating government-to-government negotiations with China, the UAE, and other major partners to establish bilateral local currency settlement frameworks. Each dollar of trade settled in taka or a partner’s currency is a dollar of pressure lifted from our reserves.

In addition, Bangladesh should treat currency swaps not as a financial technicality but as a cornerstone of national economic security and pursue a major swap line with China to secure yuan liquidity. We must also explore similar arrangements with other friendly central banks to create a buffer against speculative attacks on the taka. Additionally, we should begin technical engagement to connect our banking system with the BRICS Cross-Border Payments Initiative (BCBPI), while pursuing BRICS membership.

However, external diversification is meaningless without internal accountability. We must end the culture of tax exemptions, digitally integrate the tax net, and aim to double the revenue-to-GDP ratio in five years. Concurrently, we need a war on NPLs that combines fast-track asset recovery tribunals with pragmatic restructuring of viable businesses to unclog the banking system.

Bangladesh has options to pull itself out of the “debt trap narrative,” through vigorous domestic resource mobilisation and strategic diversification that can lead to sovereign agency in a multipolar world. The arithmetic is clear, the global examples are there, and the tools are being built by our peers in the Global South. The question is whether we have the political will to reach for the key that has always been in our own hands. The time for a strategic, sovereign pivot is now.