Awami League’s Legacy: A Debt of Tk 18 Lakh Crore Left for the Interim Government

The recently concluded tenure of the Awami League government has left the nation with an immense debt burden, amounting to Tk 18 lakh crore. Over the course of more than 15 years in power, the government borrowed extensively, with a significant portion sourced from domestic avenues, particularly the banking sector. This legacy of debt now poses a significant challenge for the interim government tasked with managing the nation’s finances.

The Debt Landscape: A Closer Look

An analysis of data from the Ministry of Finance reveals that, as of the government’s resignation, the national debt stood at an unprecedented Tk 1.836 billion. This includes both domestic and foreign borrowings. Experts have raised concerns over the previous government's debt management strategy, citing an over-reliance on domestic sources of borrowing. While foreign loans are typically favored due to their lower interest rates and longer repayment periods, the Awami League government continued to accumulate domestic debt at a concerning rate.

The Ministry of Finance’s report, which covers the period up to December of the previous year, indicates that the total debt amounted to Tk 16 lakh 59 thousand 334 crore. Updated figures for March and June are expected to confirm that the debt has since risen to Tk 18 lakh 36 thousand crore. Of this, domestic debt constitutes Tk 10 lakh 35 thousand crore, with foreign debt accounting for the remaining Tk 8 lakh 1 thousand crore.

The Rising Tide of Debt

According to data from the Economic Relations Department (ERD), the foreign debt alone was valued at 6,790 billion US dollars at the end of June, equivalent to Tk 8 lakh 1 thousand crore at the current exchange rate. This represents a sharp increase from the Tk 4 lakh 5 thousand 520 crore in foreign debt recorded just six months prior.

This accumulated debt now equals the total budget allocation for three fiscal years, reflecting the magnitude of the financial challenge facing the nation. The loans, categorized as government and sovereign-secured debts, have placed a considerable burden on the national exchequer. Repayment of these loans, along with the interest, is now the responsibility of the interim government.

Domestic Debt: A Growing Concern

The most alarming aspect of the debt situation is the rapid increase in domestic borrowing. In December 2017, the domestic debt was recorded at Tk 3 lakh 20 thousand 272 crore. By the time the Awami League government stepped down, this figure had nearly tripled. This surge in borrowing has been primarily driven by the government’s reliance on the banking system, with Tk 5 lakh 25 thousand 447 crore of the total domestic debt sourced from this sector. The remainder is tied up in treasury bills, bonds, savings certificates, and general provident funds.

When the Awami League assumed power in January 2009, the total debt, combining domestic and foreign obligations, was Tk 2 lakh 76 thousand 830 crore. Notably, at that time, foreign debt exceeded domestic debt—a situation that has since reversed under the outgoing government.

The Economic Impact

The substantial borrowing has created significant pressure on the government’s finances, with rising interest rates compounding the issue. Just two years ago, interest rates on government treasury bills and bonds ranged from 1 to 6 percent. Today, the average rate has soared to 12 percent. This escalation in interest rates has led to higher costs for servicing the debt, with Tk 93 thousand crore allocated in the current fiscal year’s budget for interest payments on domestic debt alone.

To cover budget deficits, the government has traditionally borrowed from both domestic and foreign sources. Economists argue that foreign loans are more advantageous due to lower interest rates and longer repayment terms. However, accessing these loans requires robust negotiation skills and strict adherence to international lending rules—factors that the previous government appeared to have overlooked in favor of easier domestic borrowing.

One consequence of the government’s borrowing strategy has been a significant increase in the money supply, leading to inflationary pressures. According to the Bangladesh Bureau of Statistics (BBS), headline inflation in July was around 12 percent, with food inflation exceeding 14 percent.

The Road Ahead

Mostafizur Rahman, an honorary fellow at the Center for Policy Dialogue (CPD), highlighted the previous government's reliance on both domestic and foreign loans. Over the past six to seven years, domestic borrowing, in particular, has surged. Rahman attributes this to the government’s failure to meet its tax collection targets, which were set at 14 percent of GDP in the Seventh Five Year Plan. Instead, tax collection declined from 11 percent to 8 percent of GDP, forcing the government to resort to heavy borrowing.

As the interim government takes the reins, it faces the daunting task of managing this debt legacy. Effective debt management strategies and a focus on increasing tax revenues will be crucial to avoiding further financial strain on the nation. For more on the challenges facing Bangladesh's economy, visit BengaliVogue.com.