ADB flags Bangladesh debt pressures before LDC graduation

Bangladesh’s public debt rose to around 41 percent of gross domestic product (GDP) in fiscal year 2024-25, with rising domestic borrowing and weak revenue mobilisation increasing fiscal pressure ahead of the country’s graduation from least developed country (LDC) status in 2026, the Asian Development Bank (ADB) said.

In a report titled Bangladesh at a Crossroads of Reforms, released earlier this month, the Manila-based lender said Bangladesh faces a moderate risk of both external and overall debt distress, with limited capacity to absorb shocks in the near term.

The ADB said the risks stem from structural weaknesses rather than a sharp deterioration in headline debt indicators.

Bangladesh’s tax-to-GDP ratio remains among the lowest among lower-middle-income economies, while persistent weaknesses in fiscal governance, public expenditure management and debt administration continue to undermine economic stability, the report said.

The lender warned that Bangladesh’s graduation from LDC status in November 2026 would gradually reduce access to concessional financing and trade support measures, increasing the need for stronger domestic revenue mobilisation and improved fiscal governance.

Domestic debt accounted for 55.6 percent of the country’s public and publicly guaranteed debt stock in FY25, increasing rollover and debt-servicing pressures amid weak revenue collection and a bank-dominated investor base. External debt made up the remaining 44.4 percent.

The report said external debt remained largely concessional and below solvency thresholds, although risks have increased following downward revisions to export data for FY2023 and FY2024.

Rising domestic borrowing is also increasing debt service-to-revenue pressures and strengthening sovereign-bank linkages, amplifying crowding-out risks for private sector credit and contingent liabilities, the ADB said.

Stress tests showed that disaster-related shocks pose the biggest long-term threat to Bangladesh’s debt sustainability.

Bangladesh’s tax-to-GDP ratio stood at 7.5 percent, constrained by weak compliance systems, fragmented administration and heavy reliance on manual processes.

Although reforms such as the Income Tax Act 2023 and expanded digital tax services have been introduced, the ADB said tax administration still relies heavily on manual systems and fragmented databases. Revenue collection often falls more than 15 percent short of targets because of unrealistic projections and institutional weaknesses.

The report also highlighted weaknesses in debt management systems and warned that state-owned enterprises are creating additional fiscal risks as liabilities and government guarantees continue to rise.

The lender said these vulnerabilities are increasing Bangladesh’s overall fiscal risk exposure at a critical stage of its economic transition.