Bangladesh Economy Faces Fiscal Strain as Public Debt Outpaces Revenue Growth

Fiscal squeeze tightens as debt outruns revenue

The Bangladesh Bank's latest systemic risk assessment for the first half of fiscal year 2025-26 signals a widening fiscal stress point, with the government's debt-to-revenue ratio climbing further as public borrowing outpaced both tax and non-tax revenue collection. The central bank's report, released on 13 August, indicates that broader government debt-to-GDP also edged higher during the review period, even as the overall budget deficit-to-GDP ratio — including grants — narrowed marginally.

The divergence between revenue mobilisation and accumulation of public liabilities remains the defining feature of the period, exposing structural weaknesses in the fiscal framework rather than any isolated slippage in collection efficiency.

External cushion, domestic rebalancing

External sector indicators offered partial relief. The trade balance-to-GDP ratio improved, while inflation pressures continued to ease and the taka recorded a marginal appreciation against the US dollar — a modest cushion for import costs. Yet remittance-to-GDP posted a marginal decline, trimming the inflow buffer that has historically anchored the current account.

Domestic treasury dynamics shifted in tandem. Two- to five-year treasury bonds overtook the five- to ten-year segment to become the largest holding, while short-term treasury bills retained the largest share among money market instruments — a maturity profile that points to investors pricing in nearer-term uncertainty.

Credit channel and the NBFC overhang

Bank lending growth to private non-financial corporations decelerated further, reflecting cautious credit deployment amid the broader fiscal and macroeconomic adjustments. Non-bank depository corporations registered a modest recovery in sector credit growth from near-zero levels, though the segment remains structurally marginal.

Commercial banks maintained adequate liquidity indicators — liquidity coverage and net stable funding ratios remained well above regulatory minimums. Finance companies, however, continued to record overall negative profitability amid weak net interest income, underscoring the uneven institutional capacity to absorb the current fiscal strain.

What warrants monitoring next is whether revenue collection can realign with debt accumulation before the second-half review, and whether the taka's marginal appreciation holds against renewed import-side pressures.