Bangladesh’s economy is grappling with skyrocketing interest payments which ate up more than half of government revenue expenses during the first four months of the current fiscal year of 2024-25, according to data from the Ministry of Finance of Bangladesh.
Economic Experts said that Bangladesh’s external debt of over $100 billion with a high interest rate, mounts grim challenges for the economy of the country, considering slowing earning capacity in terms of both revenue and foreign exchange of Bangladesh.
Earlier this week, Bangladesh Foreign Affairs Adviser Touhid Hossain, during his bilateral talk with the Chinese Foreign Minister Wang Yi in Beijing, urged China to reduce the interest rate and to extend the loan repayment period from 20 years to 30 years for the Chinese loan to Bangladesh. China is the fourth largest creditor for Bangladesh after Japan, World Bank and Asian Development Bank. And also, the timeframe of the Chinese loans is quite shorter compared to other major lenders of Bangladesh, which creates heavy pressure for repayment.
The growing financial burden of Bangladesh can be attributed to a shift in the country’s borrowing practices. Concessional loans, which typically carry interest rates of 2% or less, have become less accessible, compelling Bangladesh to depend more on market-based loans from China and other creditors.
The very low tax-to-GDP ratio of Bangladesh is another major concern for the country. On one hand, government expenditure has risen significantly, while local revenue collection has not kept pace with the increase in costs.
Bangladesh’s tax-to-GDP ratio stands at approximately 8 per cent, compared to 19 per cent of the Asia-Pacific average.
Moreover, the International Monetary Fund (IMF) has deferred the release of the fourth tranche of Bangladesh’s $4.7 billion budget support loan, primarily due to not meeting the target of revenue collection set for the National Board of Revenue.