Bangladesh’s government is set to face a significant increase in foreign loan repayments in the coming fiscal year, starting July 1st. The Economic Relations Division (ERD) predicts a 53% jump, with repayments reaching Tk 57,800 crore ($6.8 billion) compared to Tk 37,775 crore ($4.4 billion) this year.
This sharp rise comes as the country grapples with a severe dollar shortage. The economy has been struggling since 2022, with foreign exchange reserves dropping from $48 billion in August 2021 to around $20 billion currently.
Megaproject Borrowing Spree Fuels Debt
The ERD attributes the high repayment figures to the government’s borrowing spree to fund large infrastructure projects like the Padma Bridge Rail Link and the Rooppur Nuclear Power Plant. Bangladesh’s total foreign debt reached $62.4 billion in 2023, a threefold increase in 14 years.
Experts Warn of Deepening Crisis
Economists warn that the rising debt payments could worsen the ongoing financial crisis if returns from these megaprojects are insufficient. Former central bank governor Salehudduin Ahmed emphasizes this point.
Additional Factors Contributing to Repayment Increase
The ERD highlights several factors contributing to the rapid rise in debt repayments:
The US Federal Reserve’s interest rate hikes since 2022 have made borrowing more expensive.
The Bangladeshi taka has weakened by about 30% in the past two years, increasing the cost of repaying dollar-denominated loans.
Policy Recommendations
Policy experts like Ahsan Mansur, executive director of the Policy Research Institute, urge the government to
be mindful of the pressure on foreign exchange reserves when taking on new debt. If necessary, negotiate with creditors to adjust repayment schedules. Address the low tax-to-GDP ratio, one of the world’s lowest, to improve the government’s ability to meet debt obligations.
Looking Ahead
The ERD projects continued growth in debt repayments, reaching Tk 63,200 crore ($7.4 billion) in FY26 and Tk 71,100 crore ($8.4 billion) in FY27. Bangladesh must improve its use of borrowed funds and boost tax revenue to navigate this growing debt challenge.