Crisis in Bangladesh
Once considered a growing and emerging economy, Bangladesh is fast losing its tag and emerging as a country that has slipped into a debt trap.
Just last month, Bangladesh Bank reported a sharp rise in default loans by a staggering Tk 2.24 lakh crore in just six months, reaching Tk 6.44 lakh crore at the end of September, which amounts to 35.7 per cent of all banking credit. This situation is alarming and the financial crisis can trigger a severe decline in growth and any future prospect of a recovery.
Notably, the central bank had said default loans increased by nearly Tk 3 lakh crore in the first nine months of the current year from Tk 3.45 lakh crore in December last year.
As of now Bangladesh has slipped into a debt trap with debt-servicing emerging as the second-largest budget expense, while the tax-to-GDP ratio has plunged to around 7 per cent from more than 10 per cent.
Bangladesh is gradually moving towards a dangerous and obligatory dependency mainly because of its persistently low revenue-GDP ratio.
Financial experts are signalling an alarm over the falling tax-GDP ratio, which has dropped from above 10 per cent in recent years to nearly 7 per cent at present, terming the trend as dangerous for an economy already struggling with limited fiscal space.
Presently, in the revenue budget, after salaries and pensions, the second-largest expenditure in the country used to be agriculture and education, but now the focus has shifted to interest payments as the debt has reached an alarming level.
Despite wide-ranging debates on growth, inflation and economic management, the core challenge remains unchanged, which means Bangladesh must significantly increase domestic revenue to reduce its dependence on borrowing.
Importantly, data from the World Bank’s International Debt Report 2025 show Bangladesh’s external debt jumped 42 per cent over the last five years, with total foreign borrowing reaching $104.48 billion by end-2024.
External debt now stands at 192 per cent of export earnings, and debt-service payments surged to 16 per cent of exports, signalling growing repayment pressure.
The World Bank identified Bangladesh as one of the countries where external debt repayment pressure was rising rapidly, while flagging Sri Lanka as the only other South Asian nation in a similar category.
According to the country’s finance ministry data, as on March 2025, Bangladesh’s total outstanding debt stood at Tk 19,99,928 crore, of which foreign debt amounted to Tk 8,41,992 crore.
The bank’s statistics suggested the total default loan rate surged to 35.73 per cent at the end of September from 24 per cent in March.
The present scenario reflects a fragile state of the banking system and heightened concerns about financial governance, while the economy is suffering from a lack of investment which means that the crisis in the neighbourhood may worsen in coming months.
Since Bangladesh has been witnessing a political unrest, those governing the country needs to work on resolving the energy crisis, high interest rate, high inflation, low wage, and decrease of purchasing capacity among the masses so that some revival measures can be put in place. Otherwise, things right now seem to be quite hazy.
