Rising debt, fiscal gaps weigh on Bangladesh economy despite easing inflation: BB

The government’s debt-to-revenue ratio climbed further as debt expansion outpaced tax and non-tax revenue collection, according to the central bank.

Bangladesh is facing fiscal pressure driven by faster public debt accumulation relative to revenue generation, even as external sector indicators show signs of stabilisation, the central bank said in its latest systemic risk report released today (13 August).

According to the Bangladesh Bank’s overview for the first half of fiscal year 2025-26, the government’s debt-to-revenue ratio climbed further as debt expansion outpaced tax and non-tax revenue collection. The broader government debt-to-GDP ratio also rose modestly during the period.

The fiscal strain comes despite a marginal narrowing of the overall budget deficit-to-GDP ratio (including grants).

Higher debt accumulation relative to revenue generation continued to weigh on public finances, pushing up the debt-to-revenue ratio. However, overall deficit pressures eased slightly relative to GDP.

The trade balance-to-GDP ratio showed improvement during the review period. In contrast, the remittance-to-GDP ratio posted a marginal decline.

Inflation pressures continued to ease, while taka recorded a marginal appreciation against the US dollar, providing a cushion for import costs, according to the report.

Government borrowing dynamics reshaped the domestic treasury market, with 2- to 5-year treasury bonds overtaking the 5- to 10-year segment to become the largest holding. Short-term treasury bills continued to hold the largest share among money market instruments.

The central bank noted that bank lending growth to private non-financial corporations (NFCs) decelerated further, reflecting cautious credit deployment amid fiscal and macroeconomic adjustments. Non-bank depository corporations (NBDCs), however, saw a modest recovery in credit growth to the sector from near-zero levels.

While commercial banks maintained adequate liquidity indicators, including liquidity coverage ratios (LCR) and net stable funding ratios (NSFR) well above regulatory minimums, finance companies continued to struggle, recording overall negative profitability amid weak net interest income, the central bank said.

Source: The Business Standard