Dhaka, Dec 8 (PTI) Bangladesh has slipped into a “debt trap” with debt-servicing emerging as the second-largest budget expense, while the tax-to-GDP ratio has plunged to around 7 per cent from more than 10 per cent, the country's revenue authority chief said on Monday.

Speaking at a seminar in Dhaka, National Board of Revenue (NBR) Chairman M Abdur Rahman Khan warned that Bangladesh was gradually moving towards "a dangerous and obligatory dependency" mainly because of its persistently low revenue-GDP ratio.

“We have already fallen into a debt trap. Without acknowledging this truth, it is not possible to move forward,” he said.

Khan also expressed alarm over the falling tax-GDP ratio, which has dropped from above 10 per cent in recent years to nearly 7 per cent at present, saying the trend is "dangerous for an economy already struggling with limited fiscal space”.

Also present at the seminar, think tank Centre for Policy Dialogue (CPD) fellow and leading economist Mustafizur Rahman said in the revenue budget, after salaries and pensions, the second-largest expenditure used to be agriculture and education, while "now it is interest payments".

Finance Secretary M Khairuzzaman Mozumder said the current year's national budget was smaller for the first time in the country's history.

He compared the squeezed budgetary allocation to a situation when a “thin man is asked to lose even more weight" and warned that if excessive budget contraction continued, structural growth problems would emerge.

Mozumder said revenue growth remained far below economic needs.

“Despite wide-ranging debates on growth, inflation and economic management, the core challenge remains unchanged, which means Bangladesh must significantly increase domestic revenue to reduce its dependence on borrowing," he asserted.

Bangladesh Bank Governor Ahsan H Mansur, who also participated in the seminar, said legal reforms are underway to address non-performing loans and measures were taken to recover assets both domestically and internationally, following a “ring-fencing" policy to keep operations running.

Meanwhile, data from the World Bank’s International Debt Report 2025 show Bangladesh’s external debt jumped 42 per cent over the last five years, with total foreign borrowing reaching $104.48 billion by end-2024.

External debt now stands at 192 per cent of export earnings, and debt-service payments surged to 16 per cent of exports, signalling growing repayment pressure.

The World Bank identified Bangladesh as one of the countries where external debt repayment pressure was rising rapidly, while flagging Sri Lanka as the only other South Asian nation in a similar category.

According to the finance ministry data, as on March this year, Bangladesh's total outstanding debt stood at Tk 19,99,928 crore, of which foreign debt amounted to Tk 8,41,992 crore.

Last month, Bangladesh Bank had reported a sharp rise in default loans by a staggering Tk 2.24 lakh crore in just six months, reaching Tk 6.44 lakh crore at the end of September, which amounts to 35.7 per cent of all banking credit.

The central bank had said default loans increased by nearly Tk 3 lakh crore in the first nine months of the current year from Tk 3.45 lakh crore in December last year.

The bank's statistics suggested the total default loan rate surged to 35.73 per cent at the end of September from 24 per cent in March.

The total loans in the banking sector stood at Tk 18 lakh crore.

Analysts say the scenario exposed a fragile state of the banking system and heightened concerns about financial governance, while the economy is suffering from a lack of investment.

“Bangladesh had never seen such a slump in investment before,” Prothom Alo newspaper said in a report.

The report attributed prevailing “unrest” and “uncertainty” as the key reasons for the slump. It also listed energy crisis, high interest rate, high inflation, low wage, and decrease of purchasing capacity among other reasons. PTI AR SCY SCY

Bangladesh faces a fiscal crisis as tax revenue plunges and debt-servicing rises, creating mounting economic vulnerability. Bangladesh faces fiscal deterioration as tax revenue fell from above 10% of GDP to about 7%, increasing dependency on borrowing and creating a 'debt trap'; interest payments have become the second-largest budget item, external debt and debt-service burdens rose markedly, and a sharp increase in nonperforming loans has strained financial governance and investment prospects.