Daily Advisor

Situation

Bangladesh's public debt is now rising much faster than the revenue available to service it. According to the Bangladesh Bank Systemic Risk Report for July to December 2025, the aggregate debt-to-revenue ratio climbed from 3.3 times, or Tk 330 of aggregate debt for every Tk 100 of revenue, in FY2020-21 to 4.5 times, or Tk 450 of debt for every Tk 100 of revenue, by FY2024-25 [The Daily Star, 14 August 2026]. The government debt-to-GDP ratio rose from 32.7 percent in FY21 to 35.3 percent in FY25, and overall public debt reached $188.79 billion, 41 percent of GDP, by FY25, up from 39 percent in FY24, prompting the IMF to move Bangladesh from a low to moderate debt risk classification [The Daily Star, 14 August 2026]. The domestic financing shift is already visible: 2- to 5-year treasury bonds overtook 5- to 10-year bonds as the largest holding, short-term treasury bills retained the largest share of money market instruments, and private non-financial corporate credit growth decelerated as public borrowing absorbed domestic banking liquidity [The Business Standard, 13 August 2026].

The revenue base is too small to absorb this pressure. The tax-to-GDP ratio has fallen to 6.8 percent, and total revenue is 7.8 percent to 8.0 percent of GDP, with non-tax revenue contributing about 1.0 percent, far below the World Bank's 15 percent developing-economy stability benchmark and below India at around 12 percent, China at 13.5 percent, and Nepal at 23 percent [Dhaka Tribune, 11 June 2026]. This matters now because the FY2025-26 revenue outcome missed its original target by Tk 88,000 crore: NBR collected Tk 476,000 crore against an initial budget target of Tk 564,000 crore, later revised to Tk 518,000 crore [Daily Industry, 2 August 2026]. External debt is also close to its sustainability ceiling. The external debt-to-revenue ratio rose to 16.92 percent in FY25 from 16.53 percent in FY24, near the IMF's maximum sustainability threshold of 18 percent, while total medium- and long-term external debt reached $77.28 billion as of June 30, 2025 [The Business Standard, 21 February 2026].

Evidence

• Aggregate debt-to-revenue ratio: 3.3 times in FY2020-21 to 4.5 times by FY2024-25 [The Daily Star, 14 August 2026].
• Government debt-to-GDP: 32.7 percent in FY21 to 35.3 percent in FY25; total public debt $188.79 billion, 41 percent of GDP, up from 39 percent in FY24; IMF risk classification changed from low to moderate [The Daily Star, 14 August 2026].
• Tax-to-GDP: 6.8 percent; total revenue: 7.8 percent to 8.0 percent of GDP; non-tax revenue around 1.0 percent; World Bank benchmark 15 percent; India around 12 percent, China 13.5 percent, Nepal 23 percent [Dhaka Tribune, 11 June 2026].
• Fixed obligations consume approximately 76 percent of total government revenue: salaries, pensions, material overheads, and debt interest, leaving virtually zero revenue surplus for public development and the Annual Development Programme [The Business Standard, 22 January 2026].
• FY2025-26 NBR collection: Tk 476,000 crore against Tk 564,000 crore initial target, revised to Tk 518,000 crore; Tk 88,000 crore shortfall [Daily Industry, 2 August 2026].
• FY2026-27 budget: Tk 9.38 lakh crore, deficit Tk 243,000 crore, foreign financing plan Tk 155,000 crore, domestic bank/non-bank borrowing Tk 112,000 crore [The Business Standard, 11 June 2026].
• Structural filing weakness: over 10.2 million TIN holders, only 3.6 million to 4.2 million annual filers, nearly two-thirds of filed returns have zero net tax liability [Dhaka Tribune, 11 June 2026].
• External debt-to-revenue: 16.92 percent in FY25, up from 16.53 percent in FY24, near the IMF 18 percent threshold; total medium- and long-term external debt $77.28 billion at June 30, 2025 [The Business Standard, 21 February 2026].

Prescription

1. NBR: Convert the TIN-to-return gap into a filing and zero-liability enforcement programme. NBR should issue data-matched notices to non-filers among the over 10.2 million TIN holders, of whom only 3.6 million to 4.2 million submit returns, and audit the nearly two-thirds of returns that show zero net tax liability [Dhaka Tribune, 11 June 2026]. The mechanism is third-party income matching from bank, utility, property, and customs records, integrated into the NBR automation already named as a reform instrument in the FY27 budget [The Business Standard, 11 June 2026].
2. Ministry of Finance: Remove or sunset non-essential exemptions before the next budget cycle to widen the base. The finance minister has targeted raising tax-to-GDP from 6.8 percent to 9.6 percent and total revenue to 11 percent by FY2030-31, with 15 percent by 2035 through NBR automation, base broadening, and curbing non-essential exemptions [The Business Standard, 11 June 2026]. The Ministry of Finance should produce a public tax expenditure list and convert non-essential exemptions into time-bound incentives, not permanent relief.
3. Bangladesh Bank and Ministry of Finance: Protect private credit from the fiscal borrowing mix. Because 2- to 5-year treasury bonds have become the largest holding, short-term treasury bills remain the largest money market share, and private non-financial corporate credit growth has decelerated as public borrowing absorbs domestic liquidity [The Business Standard, 13 August 2026], Bangladesh Bank should publish a quarterly domestic debt issuance calendar and require a private credit impact assessment before any additional bank borrowing above the planned Tk 112,000 crore domestic envelope [The Business Standard, 11 June 2026].
4. Economic Relations Division and Ministry of Finance: Use the external financing plan to avoid breaching the external debt ceiling. The external debt-to-revenue ratio is 16.92 percent, against the IMF maximum sustainability threshold of 18 percent, with medium- and long-term external debt at $77.28 billion [The Business Standard, 21 February 2026]. ERD should sequence the FY27 foreign financing plan of Tk 155,000 crore [The Business Standard, 11 June 2026] toward concessional medium- and long-term commitments and make new non-concessional approvals conditional on a written external debt-to-revenue impact statement.
5. Ministry of Finance and Ministry of Public Administration: Freeze recurrent expenditure growth to release ADP space. Approximately 76 percent of total government revenue is already consumed by civil service salaries, pensions, material overheads, and debt interest, leaving virtually zero revenue surplus for development spending [The Business Standard, 22 January 2026]. The two ministries should conduct a payroll and pension cash-flow audit and cap non-salary material overheads within the current fiscal year before the next Annual Development Programme allocation.

Risks and tradeoffs

Aggressive filing enforcement may push informal firms out of formal networks or trigger taxpayer resistance, especially if zero-liability audits are perceived as harassment rather than data-based compliance. Exemption removal can raise input costs and meet sectoral political opposition; it must be limited to non-essential relief and phased to avoid a growth shock. Domestic borrowing discipline may be tested if revenue collection falls short again, forcing the government beyond the planned Tk 112,000 crore domestic borrowing or the Tk 243,000 crore deficit [The Business Standard, 11 June 2026]. A short-term treasury bill-heavy market creates rollover risk if interest rates adjust, and Bangladesh Bank's private credit priority may conflict with the government's immediate financing need [The Business Standard, 13 August 2026]. External concessional financing may arrive slowly, delaying projects or pushing counterpart agencies toward non-concessional options near the 16.92 percent external debt-to-revenue threshold [The Business Standard, 21 February 2026].

Bottom line

The fiscal constraint is no longer a revenue shortfall alone; at 4.5 times revenue, public debt converts every missed revenue target into higher domestic borrowing and weaker private credit [The Daily Star, 14 August 2026; The Business Standard, 13 August 2026]. The FY27 budget's Tk 243,000 crore deficit makes compliance, exemption reduction, and debt sequencing the immediate policy test if the 9.6 percent tax-to-GDP trajectory is to be credible [The Business Standard, 11 June 2026].