What is government debt?
When the government spends more than it earns in a year, the gap is called the budget deficit. The government borrows to cover it. Each year’s deficit added to past borrowing makes up the total the government owes: government debt. The deficit is one year’s gap; the debt is the running total.
The debt comes from two kinds of places. At home: banks and institutions buy treasury bills and bonds, and ordinary people buy savings certificates. Abroad: loans from international bodies such as the World Bank and ADB, and from other governments. Domestic debt is usually repaid in taka; most foreign debt has to be repaid in dollars or other foreign currencies.
Say Aunt Nasreen buys Tk 5 lakh of savings certificates after retiring. She may think she is “saving”, but in fact she has lent the government money for five years. The government uses it for budget spending and pays her regular profit in return. The bank where her neighbour keeps deposits may also hold government treasury bills. In this way many people are lenders to the government without realising it. The numbers are only an example.
Why it matters to an investor
- You may be a lender yourself: savings certificates, treasury bills and bonds, sukuk and expatriate bonds are all ways of lending to the government. When the government needs to borrow more, the rates on these usually rise.
- An effect on interest rates: when the government borrows heavily from banks, bank money flows that way. This can push up loan rates for businesses and households; economists call it “crowding out”.
- An effect on the taka: foreign loan instalments are paid in dollars. Larger instalments mean more demand for dollars, which can put pressure on the exchange rate.
- An effect on future taxes and spending: interest on today’s debt is paid from future budgets. When interest grows, there is pressure to cut other spending or raise taxes.
How big Bangladesh’s debt is
Rather than in taka, debt is usually judged against GDP, because a bigger economy can carry more debt. By the IMF’s figures, Bangladesh’s total public sector debt was about 42.1% of GDP in FY2024-25, of which foreign debt was about 19.5%. The IMF projects the ratio to edge up to between 42% and 43% over the following two years.
The interest bill is worth watching too. According to the Dhaka Tribune, the government spent about Tk 1.36 lakh crore on interest in FY2024-25. The proposed FY2026-27 budget set aside about Tk 1.27 lakh crore for interest, around 18% of the total revenue target (about Tk 6.95 lakh crore). These figures change every year.
How the deficit is financed
The proposed FY2026-27 budget put the deficit at about Tk 2.43 lakh crore. The plan was to borrow about Tk 1.09 lakh crore from abroad, about Tk 1.12 lakh crore from the domestic banking system and about Tk 15,000 crore through savings certificates. The mix changes from year to year, and the actual picture at year-end can differ from the plan.
- Foreign loans: often cheaper and longer-term, but repaid in dollars. When the taka weakens, the same dollar instalment costs more taka.
- Borrowing from banks: in taka, but part of the money banks could have lent to businesses goes to the government instead.
- Savings certificates: borrowing directly from the public. The profit rate is set by the government rather than by auction, and that profit is paid out of the budget.
How much debt is “too much”?
- There is no single line below which everything is safe and above which it is dangerous. Japan’s government debt is more than twice its GDP, while some countries have hit trouble with far less.
- What matters more: interest cost compared with revenue, which currency the debt is in, how long its terms are, and whether the economy is growing faster than the debt.
- Economists disagree on how much debt is healthy; the IMF and World Bank regularly publish debt-risk assessments for countries.
Worked example
- Say a country’s GDP is Tk 100 and government debt is Tk 40. The debt-to-GDP ratio is 40%.
- Next year, with prices and output together, GDP grows 10% to Tk 110. The government borrows Tk 4 more, so debt is Tk 44. The ratio is 44 ÷ 110 = 40%, unchanged.
- But if GDP grows only 5% to Tk 105 and the government borrows Tk 6, debt becomes Tk 46. The ratio is 46 ÷ 105 ≈ 43.8%.
Result: a rising debt figure does not on its own mean a heavier burden. How fast the economy grows compared with how much is newly borrowed decides whether the burden gets lighter or heavier. The numbers are only an example.
Common mistakes
- Looking at debt only in taka (“lakhs of crores!”). Without comparing it with GDP and revenue, the number tells you little.
- Treating the government exactly like a household. A government can tax, lasts indefinitely and borrows at home in its own currency, so the arithmetic is not the same.
- The opposite is wrong too: thinking “government debt never matters”. High interest costs and foreign-currency debt do create real pressure.
- Assuming government securities carry no risk of any kind. Default risk may be low, but inflation and interest-rate risk remain.
Judge government debt against GDP and revenue, not by the taka figure alone; and remember that buying savings certificates or treasury bills makes you one of its lenders.