How much does a nation’s future security depend on the way it manages its debts?
And what hidden costs emerge when power and infrastructure projects are poorly governed?
These were the questions on my mind as I attended a policy roundtable organized by the research think tank Change Initiative in partnership with SOAS University of London on 18 February 2026. The event, titled “The Governance of Power and Infrastructure Projects and the Implications for Public Debt Management,” brought together economists, development researchers, civil society advocates, and sector specialists to examine the deep fiscal challenges Bangladesh is dealing with. What I learned during the several hours of presentations and analysis has stayed with me ever since.
The main point of the discussion was a question we rarely talk about: How have Bangladesh’s growing debts, made worse by inefficient and unclear power and infrastructure projects, reduced the money available for important sectors like national defense? This matters because the financial decisions we make today will affect our security in the future. The roundtable showed that when there are governance problems in areas like power and infrastructure, the whole national budget is affected, including spending on defense, education, and social services. The conclusions were based on real data and practical policy analysis.
The State of Public Debt
Public debt refers to the total amount of money a government borrows from internal or external sources to meet its expenses when its own revenue is not enough. Before attending the conference, I was aware that Bangladesh’s public debt had grown substantially. However, seeing the full details made the scale and consequences much clearer. Recent analysis shows that Bangladesh’s external public debt has risen from about $23.5 billion in 2009 to nearly $112 billion in 2025, which is a roughly 377 percent increase over 16 years. This rise is especially shocking because it occurred even as Bangladesh’s economy was growing. However, debt grew much faster than government revenue. Today, analysts estimate that interest payments alone take up about one out of every five takas the government earns, even before repaying the actual loan amounts.
This pattern reflects broader structural weaknesses in government revenue mobilization, as well as the heavy financial burden of big infrastructure projects that rely on external loans and require large repayments. Together, these pressures have created ongoing stress on the national budget. M. Zakir Hossain Khan, co‑founder and CEO of Change Initiative, moderator of the roundtable, said, “Energy is the lifeline of the economy. The power and energy master plan has been hijacked by the masterminds of corruption.”
Corruption, Overpricing, & Debt
One of the main insights of the conference was that Bangladesh’s infrastructure and power contracts, especially those negotiated through non‑competitive processes, were significantly costlier than they might have been otherwise. A study analyzed 42 mega projects from 2009 to 2025 and found that around 35 percent of total project costs were lost to corruption and inefficiency, including overpriced contracts, collusive pricing, and poor management.
Even more striking was the comparative analysis of contract procurement methods:
- Projects awarded through transparent competitive bidding tended to be significantly cheaper.
- Government‑to‑government (G2G) contracts and those involving politically connected firms were, on average, more than 400 percent costlier than competitive alternatives.
These differences are not marginal; they add up to billions of dollars in additional fiscal burdens over the lifetime of these projects. Most of these costs continue for decades, creating long‑term liabilities that constrain future budgets. Professor Mushtaq H. Khan, head of the FCDO‑mandated Anti‑Corruption Evidence (ACE) Research Consortium at SOAS University of London, emphasized this point: “We do not only lack horizontal checks; we suffer from horizontal collusion. Rather than imposing more rules from the top, we must ensure economic competition that disrupts these collusive contracts.”
Here, “horizontal checks” means independent groups or competitive market systems that can prevent companies from working together unfairly and make sure rules are followed, unlike internal regulators, which can sometimes be influenced by political or bureaucratic interests. This means that Bangladesh’s long‑term fiscal burden was not just a result of borrowing for development, but of borrowing on inefficient, overpriced, or poorly designed terms that have become embedded in the national debt profile.
The Bangladesh government raised the power sector subsidy to Tk 620 billion in the revised Fiscal Year 2024‑25 budget, with Tk 460 billion already released to settle overdue payments to private and rental power producers, including plants like Adani Power, Payra, Summit‑Meghnaghat, Sembcorp, United Power, and Doreen Power. These recurring payments, necessary to maintain electricity supply and affordability, place a major strain on government finances, further limiting discretionary spending on other priorities such as national defense, infrastructure development, and social services.
Although Bangladesh has kept electricity prices stable for consumers, the government still has to subsidize this difference by paying around $4.9 billion every year to keep power both affordable and reliable. These subsidies are persistent and recurring. They create a continuous fiscal outflow that drains resources from other national priorities, adds pressure to an already strained budget, and reduces the government’s flexibility to allocate funds in the future, including defense. They also show how decisions in one area, such as electricity pricing, can lead to long‑term fiscal commitments that limit spending in other essential sectors.
Bangladesh’s Defense Budget
To understand the impact of debt and fiscal pressure on defense, we first need to look at the actual figures. For the 2025‑26 fiscal year, Bangladesh’s defense allocation was set at Tk 40,698 crore (approximately $3.34 billion) in the national budget. The vast majority of this, about Tk 37,812 crore, covers operational expenses, such as salaries, maintenance, and day‑to‑day military activity, while only a small portion, Tk 916 crore, is reserved for development and modernization.
This allocation was lower than earlier expectations and signaled an important policy shift in which defence spending became restricted by wider fiscal pressures. Analysts pointed out that development expenses, such as procurement and modernization, dropped by about 24 percent from the previous year, even though day‑to‑day operational costs continued to rise. The cut in capital spending shows how little room the budget now has for buying new equipment or upgrading existing capabilities, rather than simply maintaining what the forces already have.
This pattern is significant because it constrains long‑term strategic planning and readiness. Defense is not just about routine operations, it also requires steady investment to maintain a credible deterrence. Comparing Bangladesh’s defense spending with that of neighboring countries facing similar strategic conditions will help us to understand the full picture. India’s defense budget is far larger than Bangladesh’s, both in total amount and in overall capability. In the 2025–26 fiscal year, India allocated about ₹6.81 lakh crore (around $78.7 billion) to defense, with a big share going toward new equipment and modernization. These investments reflect India’s broader regional security goals and long‑term military strategy.
Pakistan’s defense budget for the same period was about PKR 2.55 trillion (around $9 billion). This represented a major increase, roughly 20 percent compared to the previous year, even though the overall federal budget faced cuts. The rise reflects Pakistan’s own security priorities in a region marked by ongoing tensions. Sri Lanka’s defense budget is much smaller. It was about LKR 442 billion (around $1.5 billion) in 2025, which reflects its smaller size and different security needs. However, its defense spending has also been shaped by heavy debt pressures and the lasting effects of its 2022 debt crisis.
What becomes clear from this comparison is that Bangladesh’s defense budget is not only small, but it also has very little room for modernization or long‑term investment. Much of this constraint is tied to the country’s rising debt and the heavy fiscal pressures created by costly power and infrastructure commitments.
Improving Bangladesh’s fiscal and security system will require a balanced approach that focuses on better governance and smarter budgeting. First, the country needs stricter rules for how public projects are chosen and managed. Reducing corruption and overpricing, especially in the power sector, would lower future debt and create more room for the budget. This means encouraging open, competitive bidding for major contracts and giving independent oversight bodies real power to enforce accountability. Bangladesh also needs stronger horizontal accountability, meaning involving groups outside the government, such as civil society, independent auditors, and the judiciary, to keep powerful actors in check. This reflects Professor Mushtaq H. Khan’s reminder that breaking collusive practices requires pressure from outside, not just from internal regulators.
The defense sector also needs a more strategic approach. While operational needs will always be important, the country must still protect and expand the part of the defense budget meant for modernization. Long‑term defense planning may require multi‑year budgeting so that capital spending is not cut every time fiscal pressures rise. Finally, Bangladesh must strengthen its ability to raise revenue. A wider and more efficient tax base would help reduce reliance on borrowing. Cutting wasteful or poorly managed spending, especially where inefficiency or corruption is involved, would free up resources for other important sectors.
Conclusion
Attending this conference was genuinely eye‑opening. I left with a much clearer sense of how Bangladesh’s rising public debt, made worse by weak governance in infrastructure, especially power contracts, has become more than an economic concern. It is now a strategic one. Bangladesh is now at a critical moment. Its progress, economic, social, and national security, will depend on how wisely it manages its current fiscal pressures. Rising external debt, costly subsidies from overpriced power deals, and limited room for defense spending clearly show that weak governance in one sector can reduce the country’s strength in another. By committing to transparency, competitive bidding, stronger oversight, and smarter budgeting, Bangladesh can strengthen its fiscal system. This would allow the defense sector and all national priorities to benefit from more accountable governance.
Afiya Ibnath Ayshi is a Security and Strategic Reporting Fellow at Bangladesh Defence Journal. She covers defence, foreign affairs, and humanitarian issues, focusing on how regional and global developments influence Bangladesh’s security and diplomacy. A graduate in English from the University of Dhaka, she brings a research-based and balanced approach to her work.