Bangladesh finances under strain as foreign debt burden surges: Report

New Delhi, June 25 (IANS) 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

sps/na