Bangladesh is currently grappling with increasing fiscal risks, as highlighted by a recent report from the Asian Development Bank (ADB). The ADB has indicated that the country faces a moderate risk of both external and overall debt distress, primarily due to weak revenue mobilization coupled with rising domestic borrowing. This situation presents significant challenges as Bangladesh approaches its graduation from least-developed-country (LDC) status, set to occur in November 2026.
The ADB cautions that this transition will gradually diminish access to concessional financing and trade support measures, thereby amplifying the urgency for enhanced domestic revenue mobilization and improved fiscal governance. Public debt in Bangladesh has surged to approximately 41% of gross domestic product (GDP) during FY25, creating substantial rollover and debt-servicing pressures. Notably, domestic debt constitutes 55.6% of the total public and publicly guaranteed debt stock, further complicating the fiscal landscape.
- Weak tax collection rates — currently falling over 15% short of targets due to reliance on manual systems
- Rising domestic borrowing pressures — increasing debt service-to-revenue ratios, affecting economic stability
- External debt remains manageable — largely concessional and below solvency thresholds
The ADB emphasized that the structural weaknesses within Bangladesh's economy are more responsible for these risks than any sudden deterioration in headline debt figures. The country has been struggling with a low tax-to-GDP ratio, even when compared to lower-middle-income economies, compounded by inadequate tax administration, public expenditure management, and debt administration practices.
Additionally, the report points out that the external debt, while largely concessional, has been under pressure due to moderating exports in FY23 and FY24. Rising domestic borrowing is intensifying debt service-to-revenue pressures, exacerbating the already precarious linkages between sovereign and banking sectors, which could crowd out private sector credit and increase contingent liabilities. Stress tests conducted by the ADB indicate that disaster-related shocks pose the most significant long-term threat to Bangladesh's debt sustainability.
