Billions of Taka needed to pay interest on govt debt

Special Correspondent: In the next fiscal year 2024-25, an allocation of Tk 108,000 crore is being set aside for the payment of interest on the government’s debt. Tk 94,376 crore was allocated in the main budget of the current financial year. However, in the revised budget, this estimate has increased to Tk 105,000 crore, according to sources in the Ministry of Finance.
A senior official from the Ministry of Finance involved in budget preparation told the media that foreign debt must be paid in US dollars and British pounds. Due to the exchange rate fluctuations of the dollar and pound with SDR, and the exchange rate of the Taka with the dollar, as well as the increase in the benchmark interest rates of the dollar and euro, the amount of foreign debt is rising. Over a few months, the exchange rate of the dollar increased from Tk 85 to Tk 107. Alongside this, the rising international interest rates have significantly increased the interest expense on both domestic and foreign loans. Initially, Tk 108,000 crore has been allocated for this sector in the next budget, but it may need to be increased in the revised budget.
Analyzing budget implementation data reveals that debt is increasing every year to meet the budget deficit, and along with it, loan interest is rising. According to the Ministry of Finance, the largest portion of the government’s operating budget is currently being spent on interest payments for domestic and foreign debt.
The government has initially set a budget target of Tk 3.5 lakh crore for the next financial year. A major portion of this, more than one and a half lakh crore Taka, will be sourced from the banking sector. Additionally, Tk 100 billion in foreign loans will be secured. The remaining funds will be drawn from other local sources, including the General Provident Fund (GPF), the investment vehicle for government employees. Due to the high-interest rates, the government plans to repay the old debt in this sector without borrowing from savings certificates in the next budget.
The target for borrowing from provident funds, which offer much higher interest rates than savings bonds, is being increased in the next financial year. Since 2015, the interest rate on government loans taken from GPF has been 13 percent. Only government employees can invest money in the high-interest GPF fund. In the next financial year, the government plans to sell savings bonds worth Tk 50 crore less than the amount that will be returned due to the expiry of the old investment period of the savings bonds.