New Delhi, May 29 (AHN) As the International Monetary Fund (MF) has reclassified Bangladesh from a low risk to a moderate risk country in its debt sustainability analysis, a report has said that mounting repayment obligations are emerging as one of the biggest challenges for the BNP-led government in its first budget preparation.

The report published in The Daily Star highlighted that the IMF's downgrade reflected "deteriorating metrics across debt volume, debt servicing relative to GDP, exports, and revenue earnings".

The crisis is pressing due to the rapid speed at which debt servicing – the combined cost of repaying principal and paying interest – is rising, it said.

The IMF projected that debt service costs covering principal and interest on loans would rise to $30.59 billion in FY26 from $26.63 billion in FY25 and to $33.84 billion in FY27.

The IMF noted that Bangladesh’s public debt reached $188.79 billion or about 41 per cent of GDP in fiscal 2024–25, up from 39 per cent a year earlier.

“The elevated debt service-to-revenue ratio, including interest payments, poses significant rollover risks over the medium term,” it said.

Bangladesh used to finance a portion of development expenditure through revenue surplus, but the country has been financing even the operational budget through borrowing in recent years, according to the report.

"The deterioration has been rapid since fiscal year 2022-23, when actual revenue fell Tk 463 crore (Bangladeshi currency) short of what was needed just to cover operating expenditure. The gap was plugged through borrowing," it said.

In FY24, the shortfall went up to Tk 3,630 crore and in the next fiscal the entire Annual Development Programme (ADP), the primary fiscal instrument for financing public sector development, had to be financed through loans.

Much of the pressure stems from earlier non concessional foreign borrowing with higher interest rates and shorter grace periods, and from large infrastructure projects financed by loans but failing to grow revenue collection.

The IMF also warned that heavy reliance on bank borrowing could out private-sector credit, adding pressure to an already strained financial system.

—AHN

aar/ag