Government Mulling Launch of Autonomous Body for Debt Management: A Step Towards Financial Stability

The government of Bangladesh is taking a proactive step towards better debt management by considering the launch of an autonomous body dedicated to overseeing all aspects of public debt. With the total debt of the country standing at Tk 18,35,035 crore or $156 billion, it is crucial to ensure that debt is managed efficiently to maintain financial stability.

The decision to form an autonomous unit for debt management comes at a time when Bangladesh is facing challenges in managing its rising debt amidst depleting foreign exchange reserves. By centralizing debt management under a single entity, the government aims to improve coordination, reduce redundancies, and enhance its ability to manage debt-related risks effectively.

A unified debt management framework will not only streamline the debt management process but also ensure a more coherent and effective approach towards managing public debt. Capacity development of the debt management unit will be essential in implementing the debt strategy and maintaining public debt on a sustainable trajectory.

The government’s primary objective with the debt management policy is to ensure that financing and debt service obligations are met at the lowest possible cost with an acceptable level of risk. While the total debt as a percentage of GDP has experienced fluctuations over the years, it is essential to keep it at a manageable level to avoid financial strain.

The composition of public debt in Bangladesh includes both domestic and external debts, with domestic debt projected to be 56 percent of the total debt stock. The reliance on domestic borrowing has increased over the years, but the high cost-bearing nature of domestic debt highlights the need for a plan to minimize costs.

External debt, on the other hand, primarily comes from bilateral and multilateral sources, with terms shifting towards semi or non-concessional financing. The risk in the existing debt portfolio is moderate, but the government must be mindful of macroeconomic risks such as rising inflation and fluctuating exchange rates.

The International Monetary Fund (IMF) has assessed Bangladesh’s public debt and highlighted the importance of mobilizing tax revenue to support necessary spending for growth and recovery. While the country has a low risk of external and overall debt distress, challenges such as higher interest rates and the need for domestic revenue mobilization remain critical.

In conclusion, the government’s initiative to establish an autonomous body for debt management is a positive step towards ensuring financial stability and sustainable debt management practices. By addressing the challenges associated with rising debt and implementing effective debt management strategies, Bangladesh can pave the way for a more secure financial future.