FROM PAGE 1

also in complexity, driven by years of infrastructure-led growth financed through borrowing.

This expansion has been underpinned by persistent fiscal deficits, meaning the government has consistently spent more than it earns, forcing it to rely on loans.

The government, however, has so far continued to meet its repayment obligations, or in other words, avoided a public debt default.

These findings echo recent assessments by the International Monetary Fund and the World Bank, both of which warned that Bangladesh’s debt is shifting from a position of comfort toward a potential risk.

According to IMF data, total public debt stood at $188.79 billion, or 41 percent of GDP, in fiscal year 2024-25, up from 39 percent a year earlier. This includes $101.24 billion borrowed domestically and $87.55 billion from external sources.

Servicing that debt, repaying both the principal and the interest, will cost the country over $30 billion this fiscal year, placing increasing pressure on public finances.

The ADB highlights a shift in how Bangladesh borrows. More than 55 percent of its total debt now comes from short-term domestic borrowing, which must be repaid or refinanced quickly. This raises liquidity risks, or difficulty in meeting near-term obligations, and rollover risks, or the need to take new loans to repay old ones.

At the same time, Bangladesh is increasingly moving away from concessional low-interest loans typically offered by development partners toward costlier borrowing. This exposes the country to higher interest payments and greater vulnerability to global financial shocks.

Interest payments alone are consuming a growing share of government spending: 16.3 percent in FY2025, projected to ease slightly to 15.4 percent in FY2026, leaving less room for critical investments in areas such as education, healthcare, and infrastructure.

The report also warns of rising exposure to short-term external debt, making foreign exchange reserves crucial for stability.

However, these reserve buffers have weakened sharply. They fell from over 75 percent of total external debt in 2016 to just 21.5 percent in 2023.

While overall external debt remains relatively stable at around 22 percent of gross national income, this drop in reserve adequacy reduces Bangladesh’s ability to absorb global shocks and increases the risk of sudden funding shortages.

Together, rising debt, higher servicing costs, and shrinking reserves point to an urgent need to strengthen debt management, the ADB said.

Despite recent policy efforts, the report identifies significant institutional weaknesses.

The Public Debt Management Act, it says, lacks clarity on why borrowing should occur, does not set limits on how much the government can borrow, and does not require parliamentary approval. This weakens its role as a fiscal anchor, a rule meant to keep government finances disciplined.

The law also does not establish an independent debt management office or ensure strong coordination among government agencies.

Transparency remains limited as well. There is no legal requirement to publish a Medium-Term Debt Management Strategy or detailed annual debt reports.

RECOMMENDATIONS

To address these risks, the ADB calls for sweeping reforms.

It recommends revising the Public Debt Management Act to introduce explicit borrowing limits and establish an autonomous debt management office responsible for risk analysis, strategy, and transparent reporting.

A unified Debt Management Information System would help track liabilities and improve transparency, while stronger audit and oversight mechanisms are needed, especially for large infrastructure projects, where cost overruns and hidden liabilities from state-owned enterprises can accumulate.

The lender also urges regular publication of detailed debt reports annually and quarterly, covering domestic and foreign debt, government guarantees, unpaid obligations, and exposure from state-owned enterprises.

Closer coordination between fiscal authorities, who manage spending and revenue, and debt managers is essential to ensure borrowing decisions align with debt sustainability objectives.

The report stresses that better public investment management, from project selection to execution, is critical to ensure borrowed funds generate strong economic returns.

It also highlights the need to monitor and disclose contingent liabilities, or potential future obligations, such as debts of state-owned enterprises.

GROWTH OUTLOOK DIMS

The ADB has further cut Bangladesh’s economic growth forecast to 4 percent for fiscal year 2025-26, down from its earlier projection of 4.7 percent, citing rising fuel prices and disruptions in global supply chains linked to the US–Israel war on Iran.

This marks the third downward revision. The ADB had projected 5 percent growth for this fiscal year in September and 5.1 percent in April last year, before lowering it to 4.7 percent in December.

Growth is expected to recover modestly to 4.7 percent in FY2026-27.

“Bangladesh is facing a difficult economic environment, shaped by global uncertainties, domestic structural constraints, and pressures on the external and financial sectors,” said Hoe Yun Jeong, the ADB’s country director in Bangladesh.