Tk1,27,500 crore to go for interest payments
Analysts say that high-interest payment obligations generally create pressure on the economy
The government has proposed allocating Tk1,27,500 crore for interest payments on public debt in the FY2026-27 budget, accounting for 13.59% of the proposed budget and 21.10% of the revenue the government plans to collect through the National Board of Revenue (NBR). Of the total interest expenditure, Tk1,05,000 crore will be spent on domestic debt servicing and Tk22,500 crore on foreign debt servicing.
Finance Minister Amir Khosru Mahmud Chowdhury proposed the allocation in the FY2026-27 budget. In the revised FY2025-26 budget, Tk1,27,000 crore had been allocated for interest payments. The new proposal, therefore, increases the allocation by Tk500 crore.
The government borrows from both domestic and external sources to finance its budget deficit. Domestic borrowing mainly comes through treasury bills and bonds issued to the banking sector, while the government also raises funds from the public through savings certificates and other instruments. External borrowing comes from institutions such as the World Bank, Asian Development Bank (ADB), and International Monetary Fund (IMF), as well as from various countries. Bangladesh has borrowed from countries including China, Japan, India, South Korea and Russia.
Huge interest burden will put additional pressure on budget management
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Analysts say that high-interest payment obligations generally create pressure on the economy. Spending 13.59% of the total budget, or 21.10% of the planned NBR revenue, on debt servicing is likely to have a negative impact on the economy.
Economists generally believe that as interest expenses rise, the government's fiscal capacity shrinks, leaving less room for spending in other sectors.
Speaking to TBS, Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), said that under the proposed budget, out of every Tk100 collected in revenue by the NBR, Tk21.10 would go towards interest payments.
"Typically, the NBR fails to meet its revenue targets. However, interest-payment obligations do not decline. As a result, by the end of the fiscal year, an even larger share of the actual revenue collected will have to be spent on servicing debt," she said.
She added that as a significant portion of revenue is being used for interest payments, the government's ability to spend on infrastructure, education, healthcare, social safety-net programmes and other development sectors is being reduced.
She noted that these payments must be made in both local and foreign currencies. Although Bangladesh's foreign exchange reserves have increased, they have not yet reached a sufficiently strong position.
According to her, the massive interest burden has also pushed up total government expenditure. Since revenue growth remains weak, the government will need to borrow more. Without stronger revenue mobilisation, rising interest costs will create an even heavier debt-servicing burden in the future.
The economist further said that when a country's debt-servicing costs rise significantly, investors, development partners and international financial institutions tend to lose confidence in its debt-management capacity. As a result, they may impose stricter borrowing conditions and charge higher interest rates.
However, she also pointed out that government borrowing can have positive effects. If borrowed funds are invested in productive sectors such as power, transport, ports or industrial infrastructure, they can contribute to economic growth. In that case, interest payments can be viewed as the cost of future development.
