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Bangladesh in Chinese Debt Trap, Echoes Sri Lanka's Crisis

Bangladesh is confronting a severe economic crisis as debt repayments, heavily linked to Chinese loans, squeeze public finances and limit policy options. Senior officials openly acknowledge the country has fallen into a debt trap, with debt servicing now exceeding allocations for priority sectors like agriculture and education. The country's external debt has skyrocketed to nearly $105 billion, with Chinese commitments under the Belt and Road Initiative expected to reach about $40 billion. Economists warn this shrinking fiscal space threatens social spending and growth, drawing alarming comparisons to the defaults of Sri Lanka and Pakistan.

Key Points: Bangladesh Debt Trap: Chinese Loans Strain Economy

  • Debt-to-GDP ratio surges past 39%
  • Chinese commitments near $40 billion
  • External debt hits $105 billion
  • Debt servicing shrinks budget for key sectors
2 min read

Bangladesh caught in Chinese debt trap

Bangladesh faces a debt crisis with soaring repayments to China, risking a Sri Lanka-style default as fiscal space shrinks and debt-to-GDP surges.

"has already fallen into a debt trap - M Abdur Rahman Khan"

New Delhi, Jan 8

Bangladesh is facing a major economic problem as rising debt repayments, much of them linked to Chinese loans, squeeze public finances and limit policy choices.

Senior officials now openly acknowledge that the country has fallen into a debt trap like Sri Lanka and Pakistan, according to a report in the London-based 'Asian Lite' newspaper.

Chairman of Bangladesh's National Board of Revenue M Abdur Rahman Khan said at a seminar recently that the country "has already fallen into a debt trap" and unless the scale of the problem was recognised, recovery would be impossible.

The allocation for debt servicing in Bangladesh's national budget exceeds priority sectors such as agriculture and education. The country's debt-to-GDP ratio has surged past 39 per cent, from around 34 per cent in 2017-18, reflecting years of heavy borrowing to finance infrastructure and development projects, the article points out.

Finance Secretary Md Khairuzzaman Mozumder underscored the severity of the situation, noting that for the first time in the country's history the current budget is smaller than the previous year.

Since joining China's Belt and Road Initiative (BRI) in 2016, Bangladesh has steadily expanded its exposure to Chinese financing. Dhaka now expects total Chinese commitments to reach about $40 billion, including $14 billion in joint ventures.

Economists warn that shrinking fiscal space will inevitably affect social spending and long-term growth prospects, even as the government struggles to meet rising repayment obligations.

The World Bank's International Debt Report 2025 has highlighted that Bangladesh's external debt has jumped by 42 per cent over the past five years, reaching nearly $105 billion by the end of 2024, compared with just $26 billion in 2010.

External debt now amounts to almost 192 per cent of Bangladesh's export earnings, while debt servicing consumes around 16 per cent of exports - a level analysts say signals mounting repayment stress and growing vulnerability to external shocks.

Bangladesh's predicament has revived comparisons with Sri Lanka, which defaulted on its sovereign debt in 2022 after years of unsustainable borrowing, much of it linked to Chinese-funded projects.

Pakistan, meanwhile, has sought a $7 billion IMF bailout to stabilise its economy while grappling with nearly $30 billion in liabilities under the China-Pakistan Economic Corridor.

Analysts are of the view that Bangladesh risks meeting the same fate unless drastic changes are made in borrowing patterns and more transparency is imposed on loan terms and project viability.

- IANS

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Reader Comments

P
Priya S
Very sad for the common people of Bangladesh. When debt servicing eats up the budget for education and agriculture, it's the poor who suffer the most. Hope their leadership finds a way out. Our government should quietly extend support if asked.
A
Aman W
A cautionary tale for all developing nations, including Indian states. Infrastructure is important, but not at the cost of future generations being burdened with unpayable debt. Due diligence and transparency in foreign loans is non-negotiable.
S
Sarah B
Reading this from an economic perspective, the debt-to-export earnings ratio of 192% is alarming. It's a classic sign of distress. The BRI model appears designed for strategic leverage, not mutual prosperity. Bangladesh needs an IMF program fast.
V
Vikram M
Our Bangladeshi brothers and sisters are hardworking people. This is the result of short-sighted political leadership chasing shiny infrastructure projects without reading the fine print. Hope they recover. India-Bangladesh ties are strong, we should help where we can.
K
Karthik V
While China's role is clear, we must also ask: where was the oversight from Bangladesh's own institutions? The revenue board chairman is speaking now, but where were the warnings five years ago? Internal governance failure is also to blame.
M
Meera T

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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