Two debt systems: US recycles, Bangladesh bleeds

Every country pays for its debt — but not every country pays with its dignity, institutions, and future. In the United States (US), the headlines scream of fiscal disaster as the national debt crosses US$36 trillion, with nearly $950 billion in annual interest payments. To many Americans, this seems like the edge of collapse. But the structure of US debt is designed to absorb and recycle its own pressure — turning fiscal strain into institutional resilience. Much of this interest is paid domestically. In essence, America owes itself.
In Bangladesh, the story takes a tragic turn. Interest is paid outward, in hard currency, to foreign lenders — draining rather than sustaining the economy. There is no internal circuit of value. Worse still, debt often finances prestige projects, inflated contracts, or outright graft, leaving citizens with the bill and little to show for it. This is not just a debt gap — it’s a systemic chasm between two radically different architectures.
America’s Debt—Large But Designed to Hold: Of the nearly $950 billion in annual interest payments on US debt, around 20 per cent — roughly $190 billion — is paid to foreign holders. The remaining 80 per cent goes to US-based entities: banks, pension funds, insurance companies, mutual funds, and citizens. A sizable portion of US debt is held by the Federal Reserve itself – constitutionally independent Central Bank, which purchases Treasury bonds in the open market — a core component of monetary policy.
What makes the US system function is the closed-loop mechanism. The Fed returns most of the interest earnings (after covering all research operational expenses) back to the Treasury. This creates fiscal recirculation: the government pays interest, but that money flows back into domestic reinvestment, banking reserves, or central coffers — fueling economic activity, supporting public programs, and maintaining investor confidence.
Moreover, because the US dollar is the world’s primary reserve currency, America enjoys a unique privilege: its debt (Treasury bonds) is in high demand, interest rates are low, and new borrowing often comes from global investors seeking safety, not return. This allows the US to finance large deficits without risking sovereign credibility.
In short, US debt is big — but it’s also domestically absorbed, globally subsidised, and systemically reinvested. It strengthens rather than saps its institutions.
Bangladesh’s Debt—Smaller, but Structurally Risky:
Bangladesh’s external public debt, at around 20 per cent of GDP, appears modest by international standards. But this surface calm conceals a host of deeper vulnerabilities:
1. Foreign Currency Denomination. Most of Bangladesh’s external debt is in dollars, euros, or yuan. Every penny of interest must be paid in hard currency, which puts enormous strain on foreign exchange reserves — especially during times of trade shocks, falling remittances, or global financial tightening.
2. No Internal Recycling. Unlike the US, Bangladesh has no central bank mechanism like the Fed that absorbs government debt or recycles interest back into the system. Nor do local banks and institutional investors hold a meaningful share of government bonds. There is no internal circuit — only external drain.
3. Weak Capital Markets. With an underdeveloped bond market, the government relies heavily on foreign loans for infrastructure and development — often tied to opaque conditions or donor priorities. Local financing options are limited, expensive, or politically manipulated.
4. Misgoverned Projects, Inflated Costs. Perhaps most damaging is how borrowed money is used. Infrastructure is built not based on utility or economic return, but political vanity. Projects arrive late, over budget, or underused — from underperforming power plants to oversized airports. Debt disappears into the sinkhole of bureaupolitigraft — a newly coined portmanteau term — reflecting a toxic mix of bureaucratic corruption and political patronage.
Interest Without Returns: Whereas US debt often funds stimulus, education, and long-term growth — with value cycling back to its people — Bangladesh’s loans frequently finance white elephants. The costs are social as well as financial.
Interest payments flow to foreign entities: the World Bank, Asian Development Bank, Chinese state-owned banks. But the benefits? Often limited to connected contractors, political allies, or rent-seeking bureaucrats. The average citizen gains little — yet repays much.
This produces a cruel irony: Bangladeshis are servicing foreign debt for assets they neither requested nor benefit from. Each dollar of interest diverts public money away from schools, hospitals, or clean water — entrenching inequality, stunting development, and corroding trust in public institutions.
Deeper Structural Fragilities: Official reassurances that the debt-to-GDP ratio is “manageable” conceal far more dangerous underlying problems. The first is currency risk. Because repayments must be made in foreign currency, the country remains perpetually vulnerable to exchange rate shocks and inflationary spirals. This means that a sudden depreciation of the taka can sharply increase the real burden of debt overnight, destabilising budgets and forcing painful cuts in essential services. The second is a revenue deficit. With one of the lowest tax-to-GDP ratios in the world, the government lacks the internal resources to sustainably service debt. Instead of drawing on robust domestic revenue, it scrambles for external borrowing or short-term fiscal manoeuvres — each cycle leaving the state more fragile. The third, and perhaps most corrosive, is a governance deficit. Decisions about borrowing are rarely subjected to independent audit, parliamentary debate, or citizen oversight. Instead, loans are negotiated behind closed doors — often in pre-election cycles — to fund grand projects that double as campaign optics rather than serve long-term national interest. Together, these vulnerabilities create a toxic debt environment. In this context, debt becomes mortgaged governance — where elite decisions are underwritten by the suffering of ordinary people, and the nation’s fiscal future is effectively traded for political convenience.
Two Loops—One Self-Reinforcing, the Other Self-Destructive: The contrast is stark. US debt operates in a closed, reinforcing loop: borrow, spend, recycle — and reinvest. The system fuels itself. Economic trust remains high because institutions deliver. Bangladesh’s system, by contrast, is leaky and extractive. Loans come in, are squandered, and interest flows back out. What remains is a hollowed-out fiscal state, overburdened by obligations and underpowered by returns. It’s not just a gap in GDP — it’s a chasm in institutional design and political will.
What to Do: Bangladesh cannot replicate America’s reserve currency or financial hegemony. But it can build smarter, more sovereign debt architecture:
1. Develop a Domestic Bond Market – Shift borrowing toward local investors who can be repaid in taka, not dollars.
2. Prioritise Productive Projects – Fund initiatives that generate real economic returns: energy reform, digitized infrastructure, logistics, education.
3. Enforce Fiscal Transparency – Mandate independent project audits, public disclosure of loan terms, and real-time budget tracking.
4. Empower the Bangladesh Bank – Create space for stronger fiscal-monetary coordination and contingency planning.
5. Curb Political Borrowing Sprees – End the practice of pre-election borrowing for showpiece projects and ribbon-cutting ceremonies.
6. Institutionalise Public Accountability – Let citizens see and evaluate the cost, purpose, and benefit of every sovereign loan.
Conclusion—Debt is a Tool, Not a Curse: Debt, when used wisely, can build futures. It can finance growth, support welfare, and strengthen infrastructure. The US shows that even large-scale debt can be sustained, if interest payments benefit domestic stakeholders and the system recycles value. Bangladesh’s model, in contrast, drains rather than develops. It borrows from the future, wastes in the present, and mortgages the nation’s institutional credibility. America pays interest to its citizens. Bangladesh pays for its dysfunction.
The real cost of debt is not just financial — it is moral, institutional, and generational. Until that cost is reckoned with, borrowing will continue to bleed Bangladesh dry — dollar by dollar, project by project, future by future.

Dr Abdullah A Dewan is a former physicist and nuclear engineer at the BAEC and professor emeritus of economics at Eastern Michigan University, USA.[aadeone@gmail.com]