"Bangladesh is bracing for substantial interest payments over the next two fiscal years, with projections soaring to Tk 2,537 billion, according to the government's 'Medium Term Macroeconomic Policy Statement for 2023-24 to 2025-26'. The breakdown reveals allocations of Tk 1,154 billion for the 2024-25 fiscal year and Tk 1,383 billion for 2025-26.
 
Domestically, interest payments are set to climb to Tk 1,008 billion in 2024-25, escalating to Tk 1,205 billion in 2025-26. Conversely, payments on external loans are notably lower, with Tk 146 billion due in 2024-25 and Tk 178 billion in 2025-26.
 
The government aims to trim its total expenditure on interest payments by the conclusion of the 2025-26 fiscal year. Historically, in FY 2020-21, 15.4 percent of total expenditures were earmarked for interest payments, a figure projected to shrink to 13.5 percent by FY 2025-26.
 
In detail, domestic interest payments are expected to decrease from 14.4 percent of total government expenditures in FY 2020-21 to 11.6 percent in FY 2024-25, rebounding slightly to 11.8 percent in FY 2025-26. Conversely, external interest payments, constituting 0.9 percent of total expenditures in FY 2020-21, are forecasted to rise to 1.7 percent by FY 2025-26.
 
Factors contributing to this increase include the depreciation of the taka against the US dollar and heightened external financing needs. The prevalence of National Savings Certificates, known for their high-interest rates, has also contributed to elevated interest costs. However, a projected decrease in the share of these instruments is anticipated to reduce the implicit interest rate of domestic financing.
 
The implicit domestic interest rate is poised to improve from 10 percent in FY 2020-21 to 9 percent in FY 2024-25 and FY 2025-26. Meanwhile, external borrowings, influenced by global interest rate hikes and local currency depreciation, are expected to elevate the external implicit interest rate from one percent in FY 2020-21 to two percent in FY 2025-26.
 
Inflationary pressures are keeping marketable securities' yields high, maintaining an overall implicit interest rate of around six percent, expected to remain consistent over the medium term.
 
To tackle projected fiscal deficits of Tk 2,792.3 billion in 2024-25 and Tk 3,170.7 billion in 2025-26, the government plans to secure Tk 1,200.3 billion from external sources in the next fiscal year and Tk 1,306.4 billion in 2025-26, with Tk 1,677.7 billion and Tk 1,864.4 billion sourced domestically, respectively."

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