Bangladesh's mounting debt servicing burden is shaping up as one of the most pressing challenges for the BNP-led government as it prepares its first budget, according to a report in The Daily Star. The warning comes after the International Monetary Fund (IMF) reclassified Bangladesh from a low-risk to a moderate-risk country in its latest debt sustainability analysis.

IMF's Debt Risk Downgrade

The IMF's reclassification reflected, in its own words, “deteriorating metrics across debt volume, debt servicing relative to GDP, exports, and revenue earnings.” Bangladesh's public debt reached $188.79 billion — roughly 41 per cent of GDP — in fiscal 2024–25, up from 39 per cent the previous year. The fund cautioned that the “elevated debt service-to-revenue ratio, including interest payments, poses significant rollover risks over the medium term.”

Rising Repayment Obligations

The pace of increase in debt servicing costs is at the heart of the crisis. The IMF projected that combined principal and interest repayments would climb to $30.59 billion in FY26, up from $26.63 billion in FY25, and rise further to $33.84 billion in FY27. That trajectory represents a near-27 per cent jump in just two fiscal years.

From Revenue Surplus to Deficit Financing

The structural deterioration in Bangladesh's public finances has been rapid. The country once financed a portion of its development expenditure through revenue surpluses. According to the report, that position reversed sharply from fiscal year 2022–23, when actual revenue fell Tk 463 crore short of what was needed to cover even operating expenditure — a gap that had to be plugged through borrowing.

By FY24, the shortfall had widened to Tk 3,630 crore. In the following fiscal year, the entire Annual Development Programme (ADP) — the primary instrument for financing public-sector development — had to be funded through loans. Notably, this means Bangladesh is now borrowing not just to invest, but to keep the lights on.

What Is Driving the Pressure

Much of the strain traces back to earlier non-concessional foreign borrowing, which carried higher interest rates and shorter grace periods than typical development loans. Large infrastructure projects financed by debt have also reportedly failed to generate sufficient revenue to service those obligations. The IMF additionally warned that heavy reliance on bank borrowing risks crowding out private-sector credit, adding further stress to an already strained financial system.

What the BNP Government Faces Next

For the BNP-led administration, navigating its first budget under these conditions will require balancing fiscal consolidation against the social and developmental spending demands of a new government. Analysts argue that without a credible revenue mobilisation plan and a renegotiation of high-cost debt, the debt-service-to-revenue ratio will continue to worsen. The IMF's medium-term outlook suggests the pressure is unlikely to ease before FY27 at the earliest.