The Bangladesh government’s foreign debt service burden is set to nearly double to $7.6 billion in FY29 from $4.11 billion in FY25. This increase is due to escalating interest payments, shorter loan maturities, and repayments for various large projects. The rising debt servicing costs pose a significant threat to the country’s financial stability, as per a report in The Daily Star.
The Finance Division’s ‘Medium-Term Macroeconomic Policy Statement’ for FY27-FY29 reveals that in FY2028-29, foreign debt servicing costs will include $4.3 billion in principal repayments. Additionally, interest payments are estimated at Tk 40,300 crore, approximately $3.3 billion at the current exchange rate.
For the ongoing fiscal year, the revised debt servicing estimate is $4.94 billion, with a projected increase to $5.62 billion in the next fiscal year. Bangladesh’s foreign debt stock is expected to surge to $123 billion by FY2028-29 from $77.27 billion in the previous fiscal year and $51 billion in FY2020-21, according to finance ministry data.
Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, explains that the mounting debt servicing burden is inevitable due to expanding debt stocks. He points out three key reasons for this burden: rapid debt accumulation post-Covid-19, shorter repayment periods, and escalating interest rates.
Hussain highlights the repayment structure of World Bank loans, where borrowers initially repay 1% interest annually for the first decade, followed by 2% in the subsequent ten years, and increasing amounts thereafter. As older loans enter later repayment phases, annual obligations rise, exacerbated by a stronger US dollar.
The report also notes that repayment schedules for significant bilateral loans are approaching. Annual repayments for the Rooppur Nuclear Power Plant loan are anticipated to reach around $600 million, while repayment of Russia’s $12 billion loan for the project will commence in September 2028. Chinese loans also demand faster repayments due to shorter grace periods and maturities.
An Economic Relations Division (ERD) report reveals that Bangladesh has borrowed approximately $9 billion from China under a package until June, with about $500 million already repaid, excluding interest. The interest rate stands at 2%, with a grace period of only five years and a repayment period of 15 years.
