Bangladesh’s public debt has reached approximately 41% of its gross domestic product (GDP) in the fiscal year 2024-25. The Asian Development Bank (ADB) stated that the country’s increasing domestic borrowing and inadequate revenue generation are creating fiscal challenges as it approaches its graduation from least developed country (LDC) status in 2026.
In a recent report named “Bangladesh at a Crossroads of Reforms,” the ADB, headquartered in Manila, indicated that Bangladesh is facing a moderate risk of debt distress, both externally and overall. The report highlighted that the risks primarily arise from structural deficiencies rather than a sudden deterioration in key debt indicators.
Bangladesh’s tax-to-GDP ratio remains one of the lowest among lower-middle-income nations, reflecting ongoing weaknesses in fiscal governance, public spending management, and debt handling, according to the report. With the impending loss of preferential financing and trade assistance post its LDC graduation, Bangladesh will need to enhance domestic revenue mobilization and strengthen fiscal governance, the ADB cautioned.
The report revealed that domestic debt comprised 55.6% of the country’s total public and publicly guaranteed debt in FY25, leading to increased pressure on debt repayment and rollover due to inadequate revenue collection and a financial system primarily dominated by banks. The remaining 44.4% constituted external debt.
While external debt remains largely concessional and below critical solvency levels, risks have escalated following downward revisions to export figures for fiscal years 2023 and 2024. The ADB noted that the rising domestic borrowing is heightening the burden of debt servicing on revenue and reinforcing the connection between the government and banks, which could potentially crowd out private sector credit and lead to contingent liabilities.
The ADB’s stress tests highlighted that the most significant long-term risk to Bangladesh’s debt sustainability comes from shocks related to disasters. The tax-to-GDP ratio in Bangladesh currently stands at 7.5%, constrained by inadequate compliance mechanisms, fragmented administration, and heavy reliance on manual procedures.
Despite recent reforms like the Income Tax Act of 2023 and the expansion of digital tax services, the ADB emphasized that tax administration in Bangladesh still heavily depends on manual processes and disjointed databases. Revenue collection often falls short by more than 15% of targets due to unrealistic forecasts and institutional shortcomings.
Furthermore, the report underscored deficiencies in debt management systems and cautioned that state-owned enterprises are adding to fiscal risks as their liabilities and government guarantees continue to escalate. The ADB warned that these vulnerabilities are heightening Bangladesh’s overall fiscal risk exposure at a crucial juncture in its economic development.
