Bangladesh finances under strain as foreign debt burden surges: Report
New Delhi, June 25
The Bangladesh government's foreign debt service burden is projected to almost double to $7.6 billion in FY29 from $4.11 billion in FY25 due to rising interest payments, shorter loan maturities, and repayments for several mega projects which poses a serious threat to the country's financial stability, according to a report in The Daily Star, a Dhaka-based newspaper.
According to the Finance Division's 'Medium-Term Macroeconomic Policy Statement' for FY27-FY29, the foreign debt servicing costs for FY2028-29 will include $4.3 billion in principal repayments, while interest payments are projected at Tk 40,300 crore, equivalent to around $3.3 billion at the prevailing exchange rate.
For the current fiscal year, the revised debt servicing estimate stands at $4.94 billion. It is projected to rise to $5.62 billion in the upcoming fiscal year.
According to finance ministry data, Bangladesh's foreign debt stock is projected to increase to $123 billion by FY2028-29 from $77.27 billion at the end of the last fiscal year and $51 billion in FY2020-21, said the report.
The report cites Zahid Hussain, former lead economist at the World Bank's Dhaka office, as saying that the rise is inevitable as debt stocks expand. He identified three major reasons behind the higher servicing burden: rapid debt accumulation following the Covid-19 pandemic, shorter repayment periods than in the past, and rising interest rates.
He also pointed to the repayment structure of World Bank loans, under which borrowers repay 1 per cent interest annually during the first 10 years, 2 per cent in the next decade, and progressively higher amounts thereafter. As older loans enter later repayment phases, annual obligations rise. A stronger US dollar is adding further pressure, he added.
The report further highlights that repayment schedules for large bilateral loans are also becoming due. Annual repayments for the Rooppur Nuclear Power Plant loan are expected to require around $600 million, while repayment of Russia's $12 billion loan for the project will begin in September 2028. Chinese loans also require faster repayments due to shorter grace periods and maturities.
According to an Economic Relations Division (ERD) report, Bangladesh borrowed about $9 billion from China under a package until June, of which around $500 million has already been repaid, excluding interest. The interest rate is 2 percent, the grace period is only five years, and the repayment period is 15 years, the report added.
— IANS
Reader Comments
Sad to see our neighbour struggling with debt. But honestly, borrowing $12 billion from Russia for a nuclear plant with such a short grace period seems reckless. India has had its own debt issues, but at least we are more cautious with bilateral loans. Hope Bangladesh can restructure.
Numbers don't lie. $123 billion debt by FY29 is huge for a country of their size. The Rooppur plant alone will cost $600 million annually in repayments. And with Chinese loans having only 5-year grace and 15-year repayment, it's like a debt trap. India should be a good friend and maybe offer some financial advice.
As an economist, I see this as a classic case of over-leverage after COVID. Bangladesh grew fast, but now the bills are due. The $4.94 billion servicing this year, rising to $7.6 billion by FY29, is concerning. They'll need to cut subsidies or raise taxes, which hurts the poor. A tough road ahead.
😔 It's heartbreaking to see a developing nation like Bangladesh struggle. They've done so well in textiles and poverty reduction. But this debt burden could undo all that. India should offer support without making it political. After all, a stable neighbourhood benefits all of us.
The $9 billion China loan is a red flag. With 2% interest, 5-year grace, and 15-year repayment, it's like a short-term loan for a long-term project. No wonder their debt is ballooning. Bangladesh needs to renegotiate terms or face default. We saw Sri Lanka's fate—don't want
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