Weak revenue collection, rising debt threaten economic stability

Chronic weaknesses in Bangladesh’s revenue system, coupled with sluggish budget execution and rising debt obligations, have emerged as some of the most serious risks to the country’s macroeconomic stability, according to a budget document.

The document notes that revenue collection has consistently lagged behind growing expenditure demands, forcing increased reliance on deficit financing and adding pressure on public financial management and long-term debt sustainability.

The country's tax-to-GDP ratio has remained below 8 per cent for years, significantly lower than that of regional and economic peers, severely limiting the government's ability to mobilise domestic resources.

According to the budget document, total revenue collection during the July-April period of FY2025-26 reached Tk 3,82,896 crore, marking a 9.87 per cent increase compared to the same period of the previous fiscal year.

Of the total amount, the National Board of Revenue (NBR) collected Tk 3,29,772 crore.

Despite the growth, the revenue performance remained significantly below target, posing a serious challenge to fiscal balance and overall economic stability.

The document stated that the problem extends beyond revenue collection, with budget implementation facing major systemic bottlenecks.

Although the budget for FY2024-25 was originally set at Tk 7,97,000 crore, the interim government revised it to Tk 7,90,000 crore for FY2025-26 in an effort to maintain balance between income and expenditure.

However, implementation constraints subsequently necessitated further adjustments to align spending plans with economic realities.

The total expenditure during the first ten months of the current fiscal year, up to April, reached only around 60 per cent of the revised budget allocation.

More concerningly, implementation of the Annual Development Programme (ADP) stood at just 40.7 per cent during the period.

This experience demonstrates that ambitious targets are of little value without a realistic balance among revenue generation, expenditure planning and implementation capacity, the budget document stated.

In FY2005-06 the revenue-to-GDP ratio stood at 8.2 per cent, while total expenditure was limited to 11.1 per cent of GDP, resulting in a manageable budget deficit of 2.9 per cent of GDP.

By contrast, the revenue-to-GDP ratio remained unchanged at 8.2 per cent in FY2023-24 despite years of economic expansion, while public expenditure increased to 12.3 per cent of GDP, pushing the budget deficit to 4.05 per cent of GDP.

The budget document attributed the widening fiscal gap to weak revenue performance, excessive spending and poor economic management under the previous government.

The  growing deficit has increased pressure on public financial management and heightened risks to long-term debt sustainability, it said.

To finance successive budget deficits, previous governments relied heavily on both domestic and external borrowing, according to the budget document.

External debt rose sharply from Tk 1,30,000 crore in 2006 to Tk 8,12,000 crore by 2024.

Domestic debt increased even more dramatically, surging from Tk 65,000 crore in 2006 to Tk 10,77,000 crore in 2024, representing an almost sixteen-fold increase.

As a result, debt-servicing costs have escalated substantially. Annual interest payments climbed from Tk 8,500 crore in FY2005-06 to Tk 1,14,700 crore in FY2023-24, placing a significant burden on public finances.

The document stressed that strengthening revenue collection, improving budget execution and ensuring prudent debt management would be essential to restoring fiscal discipline and sustaining long-term economic growth.