Domestic Debt Market in Bangladesh: Risks, Reforms, and the Road Ahead
Bangladesh’s domestic debt now makes up 57 per cent of its total public debt. Although this debt is in local currency and avoids direct exchange rate risk, the rising cost of interest payments is putting heavy pressure on the national budget. This limits the government’s ability to fund public investments and social services. Heavy borrowing from banks—which supply 58 per cent of domestic debt—along with costly non-bank instruments like National Savings Certificates (NSCs), leads to three major problems: it reduces credit available to businesses, increases the risk of the government being unable to refinance its debt, and maintains a weak and inefficient financial market. This policy brief examines the structure and risks of Bangladesh’s domestic debt market, highlighting both vulnerabilities and reform opportunities. It identifies core bottlenecks such as short maturities, weak secondary trading, and a shallow investor base that constrain market depth and resilience to recommend practical, globally aligned reforms to modernise, broaden, and strengthen the market so it can better anchor financial stability and support sustained economic growth.