The government is mulling to launch an autonomous body to ensure proper debt management.

All aspects of public debt management from the issuance of treasury securities to the overseeing of the national savings certificates and external borrowing among others would be conducted under the Finance Division through the autonomous unit.

The government expressed its hope in the latest medium-term debt management strategy that a single debt management entity will improve coordination, reduce redundancies, enhance the government's ability to manage debt-related risks efficiently and maximise the benefits of public debt.

The decision of forming an autonomous body came when Bangladesh is facing a challenge in managing its rising debt amid depleting foreign exchange reserves.

The total debt of the country stood at Tk 18,35,035 crore or $156 billion as of June 30 of 2024.

Of the total debt, the domestic debt was Tk 10,35,529 crore or $88 billion and the rest are external debt.

To enhance the management of public debt, it is crucial for Bangladesh to move towards a unified debt management framework gradually.

A unified approach would ensure a more coherent and effective debt management, the government said.

Capacity development of the debt management unit in this regard will help to ensure better implementation of the debt strategy and maintain public debt on a sustainable trajectory.

The primary objective of the debt management policy of the government is to ensure that the financing and debt service obligations are met at the lowest possible cost with an acceptable level of risk.

Initially, total debt as a percentage of the gross domestic product (GDP) experienced a downward trend, decreasing from 35.9 percent in 2006-07 fiscal year to 26.2 percent in 2016-17 fiscal year.

However, there has been a subsequent upward trend, with total debt reaching 36 percent in 2022-23 fiscal year.

The public debt of Bangladesh is composed of domestic and external debts.

At the end of 2023-24 fiscal year, domestic debt is projected to be 56 percent of the total debt stock and the remaining 44 percent is external debt.

The domestic debt portfolio comprises of short-term securities or treasury bills, bonds, Sukuk, demand promissory notes and special bonds.

National savings certificates and T-bonds are the main components of the domestic debt.

Financing from domestic sources has increased substantially over the years and the domestic market debt is projected to reach 65.85 percent of the total domestic debt.

To carry on with the much-needed public investment, the government is increasingly reliant on the domestic market.

But the domestic borrowing is high cost-bearing as the interest rate is high in national savings certificates, bills and bonds.

So, a plan should have been there to keep it at a minimum level.

Bilateral and multilateral debt from development partners are the only sources of external debt since Bangladesh is yet to issue a sovereign bond.

However, the terms of external financing have been shifting from concessional to semi or non-concessional in the recent years.

The risk in the existing debt portfolio is moderate, primarily due to the majority of the debt being denominated in local currency and the long maturity period of external debt.

Domestic debt is significantly more expensive than external debt.

However, the exchange rate risk has increased over time due to high reliance on external borrowing.

About the macroeconomic risks and its implications for debt management, the government said rising inflation can fuel interest expenditure that may create higher fiscal pressure and external loan servicing may become expensive in terms of local currency if the exchange rate continues fluctuating.

The International Monetary Fund (IMF) gave an assessment in its latest debt-service analysis for the country about the public debt of Bangladesh saying the country has a low risk of external and overall debt distress.

The IMF document was published last month.

The increasing debt service to revenue ratio highlights the urgency of mobilising tax revenue to support the much-needed spending to achieve pro-poor green growth recovery, it said.

The government said to the IMF that higher interest rates, both external and domestic, will remain a critical challenge in the coming years although the debt distress remain low.

It acknowledged the urgent need to accelerate domestic revenue mobilisation to meet financing needs.

The government also reconfirmed to the IMF that it has no plan to issue Eurobonds.