Bangladesh spent a record Tk 1344.30 billion ($15.7 billion) on interest payments in the fiscal year 2024–25, equivalent to nearly one-fifth of the national budget, according to the Finance Division’s latest report.

The figure almost matches the government’s development expenditure under the Annual Development Programme (ADP), which totalled Tk 1443.56 billion for the same year.

The initial allocation for interest payments was Tk 1,135 billion, later raised to Tk 1,215 billion in the revised budget; however, actual spending surpassed both projections.

High borrowing costs have persisted into the current fiscal year, with Tk 319.52 billion, about 26 percent of the annual allocation, spent on interest payments in the first three months alone, while expenditure in other sectors remained subdued.

The surge reflects the government’s growing reliance on domestic and external borrowing, as well as the recent increase in yields on treasury bonds and bills. In FY25, interest rates on such instruments hovered between 11 and 13 percent, compared with around 8 percent in previous years.

Data show that interest payments on domestic loans reached Tk 1166.17 billion in FY25, up 17 percent from the previous year, while payments on foreign loans rose by 25 percent to Tk 178.12 billion.

Interest now accounts for 28 percent of the revenue budget, compared with below 20 percent a decade ago. Analysts say the pressure intensified after the Covid-19 pandemic, when large-scale borrowing drove up repayment costs.

Despite rising expenditure, sluggish revenue growth has kept Bangladesh’s tax-to-GDP ratio around 8 percent—well below regional averages of 12 percent in India, 17 percent in Nepal, and 19 percent across the Asia-Pacific.

Economists warn that the continued rise in borrowing costs and weak revenue performance could erode fiscal space, limiting the government’s ability to fund development and social programmes.