The payment of interest in the new national budget will cross Tk 1 lakh crore for the first time against the backdrop of a borrowing spree to meet high spending against low revenue incomes over the past decade.聽聽聽聽
Some Tk 1.13 crore will be kept aside in the FY25 budget for clearing the interest payment for borrowing from the local and foreign sources, almost double from Tk 55,664 crore paid in interest five years back in FY20, said the Finance Division officials.聽
Of the amount, interest payment for local borrowing is likely to be kept 12 per cent higher to Tk 93,000 crore over Tk 82,000 crore projected in the outgoing FY24, while the interest payment for foreign borrowing is likely to grow by around 65 per cent to Tk 20,500 crore in FY25 from original Tk 12,367 crore shown in the outgoing FY24.
Economists attributed low revenue income for the growing dependency on borrowing from both the local and foreign sources for the speedy rise in interest payment that will eventually create obstacles for the government to increase higher allocations for crucial sectors like health and education.
The interest payment may eat up 16 per cent of the overall new budget compared with 12. 4 per cent projected in the outgoing FY24, according to the Finance Division officials.
Zahid Hussain, former World Bank Dhaka office chief economist, noted that growing interest payment will make it difficult for the government to allocate necessary funds to the health, education and safety net sectors.
He said that the depreciation of the local currency Taka against the US dollar accelerated the interest payment for foreign loans.
In FY23, the local currency depreciated by around 26 per cent, highest in 46 years.
Besides, Taka lost another eight per cent in the outgoing FY24, including a whopping Tk 7 against dollar in a single day on Thursday to secure $1.1 billion from the International Monetary Fund as the third tranche of the ongoing $4.7 billion loan programme the government agreed to implement until May 2026 to tackle the severe dollar shortage.
Center for Policy Dialogue distinguished fellow Mustafizur Rahman said that pressure on further devaluation of the local currency is likely to remain in the coming year too.
Proceeds from exports and remittance accounting most of the country鈥檚 incomes from the external sources are not satisfactory in the recent period, he said.
Economists have been suggesting for a unified rate instead of current multiple ones for the foreign currency exchange to check exchange rate volatility.
They have been also saying that the exchange rate volatility created more risks for interest payment on聽 foreign borrowing than the interest payment on local borrowing.
The interest on foreign borrowing has to be paid in foreign currency, said Policy Research Institute executive director Ahsan H Mansur.
The Economic Relations Division has already projected that the repayment for principal and interest on foreign loans will grow 53 per cent to around Tk 57,800 crore in FY25 against Tk 37,775 crore in the outgoing FY24.聽聽
For the high growth in payment of foreign loans, the ERD had attributed the borrowing spree over the past several years for the implementation of the megaprojects, including the Roopur Nuclear Power Plant, Padma Bridge Rail Link Project, Karnaphuli River Underneath Tunnel, Metro Rail Line Project, LNG Terminal in Maheshkhali, and Payra Sea Port.
Besides, AH Mansur called the low tax-to-GDP ratio as one of the weak points of the government that will increase dependency on borrowing to meet the growing liability in the coming days.
