Low revenue collection hampers debt management: Official document

The Finance Ministry has highlighted low revenue collection as a major obstacle to effective debt management, restricting the government's ability to invest in infrastructure and development projects.

According to a document from the ministry, the lower revenue-to-GDP ratio adversely impacts debt sustainability.

"This issue is further exacerbated by the LDC graduation deadline in 2026, which will affect the country's access to concessional financing from international sources," the document states.

The finance ministry's document, titled 'Medium Term Macroeconomic Policy Statement (2023-24 to 2025-26)', also identifies the high-interest rate environment both domestically and internationally as another significant challenge. This situation is increasing borrowing costs and straining public finances.

The rising need for government funding to support critical infrastructure, social safety nets, and other development initiatives compounds the problem.

Additionally, the presence of segmented debt offices within various agencies has created coordination challenges in debt management, potentially affecting the country's fiscal sustainability.

Recommendations for Improvement

To address these challenges, the Finance Ministry recommends a comprehensive and integrated approach to debt management, improved revenue collection, and exploring alternative financing mechanisms to reduce reliance on debt.

It is crucial to address these issues promptly to ensure that the country's public debt remains sustainable, the document asserts.

Steps Toward Financial Efficiency

The Finance Division has already undertaken measures to enhance the efficiency and transparency of the financial system. One key initiative is the introduction of secondary market transactions of government securities, facilitated by a memorandum of understanding (MoU) signed among Bangladesh Bank, the Bangladesh Securities and Exchange Commission (BSEC), the Dhaka Stock Exchange (DSE), the Central Depository Bangladesh Limited (CDBL), and the Central Counterparty Bangladesh Limited (CCBL).

This move aims to increase the scope and depth of the secondary bond market, allowing both institutional and household investors to participate in government securities transactions. It is expected to help finance the government's deficit more efficiently and contribute to capital market development and overall economic growth.

Additional Reforms

The automation of the National Savings Certificate (NSC) issuance process represents another critical reform aimed at increasing efficiency and reducing paperwork. This measure supports the implementation of policy measures such as slab-based interest rates and individual investment ceilings, aligning with the government's financing strategy and reducing investment in NSC.

Furthermore, the publication of the Debt Bulletin ensures transparency in debt data, benefiting various stakeholders including other ministries, research organisations, the business community, the international community, and the general public.

Moderate Debt Levels, Significant Challenges

Despite Bangladesh maintaining a moderate level of public debt and a low risk of external debt distress due to strong growth and prudent macroeconomic management, the document stresses that significant challenges remain. Addressing these challenges is essential to maintaining sustainable public debt and supporting the country's development objectives.