The government's expenditure on interest payments is set to swell further in the upcoming budget, reflecting the growing burden of public debt on the national economy and other headwinds.
The government is expected to allocate approximately Tk 133,000 crore for interest payments, equivalent to nearly 1.90 per cent of the country's Gross Domestic Product (GDP), finance ministry sources told the Daily Observer.
However, economists warn that the actual expenditure may rise further depending on economic conditions, the volume of borrowing, and fluctuations in interest rates.
Allocation may hit Tk 133,000cr
The proposed allocation is about Tk 11,000 crore higher than the Tk 122,000 crore earmarked for interest payments in the current fiscal year of 2025-26. Of that amount, Tk 100,000 crore was allocated for servicing domestic debt and Tk 22,000 crore for foreign debt.
In comparison, the government's interest payment expenditure stood at Tk 63,801 crore in 2020-21 fiscal year.
As a result, a significant portion of state resources will be spent not on new infrastructure, employment generation, or public services, but on servicing previously accumulated debt. Government projections indicate that interest expenses will continue to rise in the coming years due to sustained pressure from both domestic and external borrowing, creating an increasing strain on the national budget.
According to official documents, the government's total interest expenditure in 2023-24 fiscal year amounted to Tk 118,662 crore while the revised estimate put the actual expenditure at Tk 136,123 crore, exceeding the original allocation by Tk 18,623 crore. Consequently, interest payment costs reached a new high within a year, with indications that the pressure will persist in the years ahead.
Experts say the government's ability to manage this growing burden will largely depend on improvements in revenue collection, efficient debt management, and success in controlling inflation.
Economists attribute the rapid rise in interest expenditure to the government's continued reliance on borrowing, elevated interest rates, and liquidity pressures within the banking sector.
They warn that the increasing debt-servicing burden may eventually constrain budgetary allocations for development spending, social safety net programmes, education, and healthcare.
Dr Fahmida Khatun, Executive Director of the Centre for Policy Dialogue (CPD), said that the government's huge interest payment obligations are creating significant pressure on development-oriented sectors such as health and education, as well as social protection programmes.
The government's excessive borrowing has contributed to an investment drought and reduced employment opportunities, she said.
Dr. Zahid Hussain, former Chief Economist of World Bank in Dhaka Office said that when a large share of the national budget is devoted solely to interest payments, the budget ceases to be development-friendly.
The government's capacity to undertake new programmes declines. Excessive domestic borrowing can put additional pressure on money supply and market interest rates, potentially making inflation even more difficult to control, he said.
He added that although a contractionary monetary policy has been adopted to curb inflation, the continued pressure from unproductive expenditures and debt servicing obligations has prevented the economy from achieving the desired momentum.
According to government briefing documents, Tk 122,000 crore was allocated for interest payments in 2024-25 fiscal year, equivalent to 2.03 per cent of GDP. However, the revised estimate increased to Tk 136,123 crore, representing nearly 2.50 percent of GDP. The expenditure also accounted for approximately 21.5 percent of total budget spending. In other words, nearly one out of every five taka spent by the government is now used solely for interest payments.
The interest payment expenditure has risen significantly every year since 2018-19 fiscal year. Interest payments amounted to approximately Tk 49,461 crore in 2018-19 fiscal year, increasing to Tk 58,313 crore in 2019-20 fiscal and Tk 71,536 crore in 2020-21 fiscal. The upward trend accelerated further in subsequent years, surpassing Tk 77,432 crore in 2021-22 fiscal and reaching nearly Tk 92,116 crore in 2022-23 fiscal.
Economists note that the government's dependence on domestic borrowing has increased considerably in recent years. In particular, borrowing from the banking sector has resulted in higher interest costs. The Bangladesh Bank's policy rate hikes and the introduction of a market-based interest rate regime have also increased the government's borrowing costs, directly contributing to higher interest payment expenditure.
Official data suggest that if inflation is not brought under control quickly and normal conditions are not fully restored in the financial sector, the government's interest burden could rise further. High inflation often requires maintaining relatively elevated interest rates, which in turn increases the cost of government borrowing.
Officials at the Ministry of Finance said the single largest factor behind the rise in recurrent expenditure is the growing burden of interest payments on both domestic and external debt. At the same time, the government has been compelled to provide substantial subsidies for fuel, electricity and fertiliser due to rising prices in international markets.
They noted that the expansion of social safety net programmes, increases in salaries, allowances, pensions and special incentives for public sector employees in line with inflation, as well as the depreciation of the taka against the US dollar, have significantly pushed up government spending. The weakening of the local currency has also raised the cost of servicing and repaying foreign loans, further increasing the government's non-productive expenditure.
Finance Ministry officials attributed the sharp increase in recurrent expenditure primarily to the mounting cost of servicing domestic and foreign debt. They said the government is also facing growing subsidy obligations in the energy, power and fertiliser sectors amid elevated global commodity prices.
Mahbub Ahmed, former Finance Secretary said that, under normal circumstances, government operating expenditures are financed through revenue earnings, with a portion of the revenue also contributing to development spending. However, at present, revenue income is insufficient even to fully cover operating expenditures, a situation he described as concerning.
According to him, the government should take effective measures to increase revenue collection while simultaneously maintaining strict control over operating expenditures to ensure fiscal sustainability.
