Bangladesh faces a moderate risk of external and overall debt distress, with limited capacity to absorb near-term economic shocks, the Asian Development Bank (ADB) has warned in a new assessment. The Manila-based lender identified weak revenue mobilisation and rising domestic borrowing as the primary drivers of growing fiscal pressure on the country.

Key Vulnerabilities Identified

The ADB pointed to a persistently low tax-to-GDP ratio — below the average for lower-middle-income economies — alongside weak tax administration, fragmented public expenditure management, and inadequate debt administration as core structural vulnerabilities. According to the assessment, Bangladesh's tax administration relies heavily on manual systems with fragmented databases, leaving it collecting taxes over 15 percent short of targets.

Bangladesh's public debt has surged to approximately 41 percent of GDP in FY25. Domestic debt accounted for 55.6 percent of the country's public and publicly guaranteed debt stock, generating significant rollover and debt-servicing pressures. External debt made up the remaining 44.4 percent, which the ADB noted remains largely concessional and below solvency thresholds — though export moderation in FY23 and FY24 has added to external-side risks.

LDC Graduation Adds Pressure

A critical inflection point looms: Bangladesh is scheduled to graduate from least-developed-country (LDC) status in November 2026. The ADB warned this transition will progressively reduce access to concessional financing and preferential trade support measures, making stronger domestic revenue mobilisation not just desirable but necessary. Without meaningful fiscal reform, the country's ability to service and manage its debt could deteriorate further at precisely the moment external support is being scaled back.

Domestic Borrowing and Sovereign-Bank Linkages

Rising domestic borrowing is compounding the pressure in two ways. First, it is increasing debt-service-to-revenue ratios. Second, it is deepening sovereign-bank linkages, which the ADB said amplifies crowding-out risks for private sector credit and raises contingent liability exposure. A bank-dominated investor base further concentrates rollover risk within the domestic financial system.

State-owned enterprises are adding to fiscal risk, with rising government guarantees expanding Bangladesh's overall contingent liability burden at what the lender described as a critical stage of economic transition.

Stress Tests and Long-Term Threats

Stress tests conducted as part of the assessment found that disaster-related shocks remain the most serious long-term threat to Bangladesh's debt sustainability. The ADB stressed that the risks stem from structural weaknesses rather than any sudden deterioration in headline debt metrics — a distinction that makes the vulnerabilities harder to address through short-term policy adjustments alone.

With LDC graduation approaching and fiscal buffers thin, the trajectory of Bangladesh's revenue reforms and debt management capacity will be closely watched by multilateral lenders and sovereign credit analysts in the months ahead.