Subsidies, interest payments rose 30% in FY25

Government spending on subsidies and interest payments, considered a fiscal burden, rose 30 percent year-on-year to Tk 2.43 lakh crore in the fiscal year 2024-25.

In FY 2023-24, the expenditure stood at more than Tk 1.87 lakh crore.

Although the government's development expenditure declined significantly last year, interest payments and subsidies accounted for nearly 39 percent of the total budget.

Subsidy spending in FY25 rose by 49 percent to around Tk 1.08 lakh crore, up from Tk 72,841 crore in the previous fiscal year. Interest payments rose 17 percent to around Tk 1.34 lakh crore, compared with Tk 1.14 lakh crore in FY24.

A finance ministry official said the increase in subsidy spending reflected repayment of arrears from previous years in the power and fertiliser sectors.

Allocation for electricity subsidies, originally set at Tk 40,000 crore, was later raised to Tk 62,000 crore in the revised budget, according to the official.

Similarly, subsidies for fertiliser and fuel also increased.

Interest payments last year were almost on par with spending under the annual development programme.

According to Finance Division data, the government spent around Tk 1.16 lakh crore ($13.6 billion) on domestic loans, a 17 percent rise from Tk 99,606 crore in FY24.

Meanwhile, interest on foreign loans increased 25 percent to Tk 17,812 crore ($2.1 billion), up from Tk 14,984 crore in FY24. Most domestic borrowing comes from treasury bills and bonds issued to banks and non-bank investors. The cost of these borrowings has risen sharply, according to finance ministry data.

Bond yields, which were once around 8 percent, climbed above 10 percent in FY24 and further to between 11 percent and 13 percent in FY25, according to the ministry.

Interest payments surged after the Covid-19 pandemic, when the government borrowed heavily from foreign sources to support the economy. Obligations on these loans began immediately after disbursement.

Meanwhile, the sharp drop in development spending led to a slowdown in overall budget implementation.

Last year, budget implementation totalled around Tk 6.28 lakh crore, with development spending reaching around Tk 1.43 lakh crore.

In FY 2023-24, total implementation was Tk 6.11 lakh crore, including Tk 1.95 lakh crore under the ADP.