A lavish budget built on record borrowing

The economy is currently facing severe challenges. Revenue collection has fallen short of expectations, while the government continues to rely heavily on borrowing from banks due to a funding crunch. Foreign debt is also rising. Despite these difficulties, the government is preparing an ambitious budget of Tk9.30 trillion (Tk930,000 crore) for the fiscal year 2026–27. The revenue collection target for the budget has been set at Tk 6.95 trillion (Tk695,0000 crore).

A major portion of the remaining funds will be met through domestic and foreign borrowing. The government plans to secure Tk110,000 crore from foreign loans and Tk119,000 crore from domestic sources. In addition, anticipating a shortfall in revenue collection, preparations are underway to seek another Tk44,000 crore in budget support loans.

Sources at the Economic Relations Division (ERD) say the foreign borrowing target for the upcoming fiscal year is the highest in Bangladesh’s history.

Compared to the original Annual Development Programme (ADP) allocation of the previous fiscal year, the foreign borrowing target has increased by Tk24,000 crore. Compared to the revised ADP, it has increased by nearly Tk38,000 crore—representing an increase of around 52 percent in external borrowing. The target for foreign loans in the current fiscal year was Tk86,000 crore, but during the first nine months, the government managed to disburse only Tk47,000 crore.

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However, while the government is planning new loans, the burden of repaying old debt is increasing rapidly. According to ERD data, Bangladesh will have to repay nearly $25.99 billion in foreign loans between fiscal years 2025–26 and 2029–30. Of this amount, $18.38 billion is principal and nearly $7.6 billion is interest. The fiscal year 2029–30 alone will require repayments of approximately $5.5 billion, making it the year of highest pressure.

Economists say the grace periods for several large projects are ending, meaning principal repayments will begin in full. Installments for major projects, including the Rooppur Nuclear Power Plant, will have to be paid over the coming years. However, many of these projects have experienced implementation delays and have yet to deliver their expected economic benefits. As a result, debt repayment is becoming an additional burden on the economy.

ERD sources said Bangladesh repaid a record $4.09 billion in foreign loans in the recently concluded fiscal year—the highest amount in its history and $740 million more than the previous year. Debt repayments stood at $3.35 billion in FY2023–24 and $2.67 billion in FY2022–23. Rising global interest rates have significantly increased debt servicing costs, and officials believe repayments may exceed $4.5 billion in the current fiscal year.

Meanwhile, a major revenue shortfall has further complicated the situation. Revenue collection has lagged far behind expectations. According to National Board of Revenue (NBR) data for the first eight months of the fiscal year, the revenue shortfall reached Tk97,990 crore. Against a target of Tk385,852 crore, actual collections stood at only Tk287,862 crore. Given this reality, the government is increasingly turning toward foreign borrowing.

Although several initiatives have been taken to reduce government spending, expenditure pressures remain high. The government continues to depend on loans to meet salary and allowance payments for public employees, subsidies, social safety programmes, and development expenditures. According to Bangladesh Bank data, during the first nine months of the current fiscal year, the government borrowed nearly Tk109,000 crore from the banking system—already exceeding the annual target. Around Tk56,000 crore was borrowed in the January–March period alone.

Analysts warn that excessive government borrowing from banks is reducing credit flow to the private sector, creating risks for investment and employment and potentially affecting GDP growth negatively.

ERD data shows Bangladesh’s total external debt has now exceeded Tk23 trillion. At the same time, the government has sought an additional $3 billion in loan support from development partners. Uncertainty has also emerged regarding the next installment of the $4.75 billion loan package from the International Monetary Fund (IMF). During a meeting with the finance minister in Washington, the IMF did not provide clear assurance regarding the release of the next tranche, reportedly due to slow progress in reforms and meeting conditions.

Against this backdrop, the government recently adjusted fuel prices. Although authorities repeatedly stated fuel prices would not be increased, large subsidies had become necessary because imported fuel was being sold below international market prices. The IMF had also been pressing for subsidy reductions. Consequently, the government raised fuel prices to manage fiscal pressure. Economists fear this could further fuel inflation.

In the current fiscal year, around Tk122,000 crore was allocated solely for interest payments. In the next budget, this figure is expected to rise to Tk127,500 crore. Rising international prices are also increasing fuel subsidy costs. Combined with the expansion of social safety programmes, implementation of election pledges, and pressures from a new pay structure, the size of the budget is expanding further. As a result, concerns are growing that the budget deficit could reach around 5 percent of GDP.

Mustafizur Rahman, Distinguished Fellow of the Centre for Policy Dialogue (CPD), said, “The most important issue now is ensuring that Bangladesh does not fall into a debt trap. The government should place greater emphasis on resource mobilization and revenue generation.”

Meanwhile, Zahid Hussain said, “The situation cannot be managed through borrowing alone. A clear assessment is needed of where pressures are building in the macroeconomy, including imports, exports, remittances, subsidies, and revenue conditions. Coordinated reforms and effective support from development partners are also essential.”

Economists have warned that implementing such a large budget amid high-interest foreign debt, growing bank borrowing, revenue shortfalls, and rising interest payment burdens will be increasingly difficult. They caution that managing election promises, expanding social protection programmes, introducing a new pay structure, and increasing subsidies could push the economy into greater risk. Without structural reforms now, this lavish budget could eventually trigger a major financial crisis in the future.

Source : Kaler Kantho