Bangladesh is grappling with a significant economic challenge due to increasing debt repayments, many of which are associated with Chinese loans, impacting public finances and constraining policy decisions. Officials have openly admitted that the country has fallen into a debt trap similar to Sri Lanka and Pakistan. The allocation for debt servicing in Bangladesh’s national budget now surpasses key sectors like agriculture and education.
The debt-to-GDP ratio of Bangladesh has risen above 39%, up from about 34% in 2017–18, reflecting substantial borrowing for infrastructure and development projects. Finance Secretary Md Khairuzzaman Mozumder emphasized the gravity of the situation, highlighting that the current budget is smaller than the previous year for the first time in the country’s history. Since joining China’s Belt and Road Initiative in 2016, Bangladesh has increased its exposure to Chinese financing, with total Chinese commitments expected to reach around $40 billion.
Experts caution that the shrinking fiscal space will impact social spending and long-term growth prospects, while the government grapples with mounting repayment obligations. Bangladesh’s external debt has surged by 42% over the past five years, reaching nearly $105 billion by the end of 2024, compared to $26 billion in 2010. The country’s external debt now stands at almost 192% of its export earnings, with debt servicing consuming approximately 16% of exports, indicating escalating repayment pressure and heightened vulnerability to external shocks.
The situation in Bangladesh draws parallels with Sri Lanka, which defaulted on its sovereign debt in 2022 after unsustainable borrowing, much of it tied to Chinese-funded projects. Pakistan, on the other hand, has requested a $7 billion IMF bailout to stabilize its economy while managing nearly $30 billion in liabilities under the China–Pakistan Economic Corridor. Analysts warn that Bangladesh faces a similar fate unless there are significant shifts in borrowing patterns and enhanced transparency in loan terms and project viability.
