Bangladesh begins FY26 with steep debt servicing pressure
Debt servicing is projected to reach $5b by end of FY26
Foreign debt repayments saw a steep rise at the beginning of the new fiscal year (FY2025-26), with Bangladesh paying more than double the amount disbursed by development partners in July.
According to the latest Economic Relations Division (ERD) report published today (28 August), the government repaid $446.68 million in the first month of FY26 – with $327.72 million as principal repayment and $118.96 million in interest.
But the country received only $202.44 million from the development partners in the month.
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According to ERD officials, Bangladesh's debt obligations are mounting as grace periods on several major loans have expired. Many of these loans were contracted under tough conditions, with short repayment schedules and relatively high interest rates, leading to a steady increase in repayment pressure.
Bangladesh's foreign debt burden rose to $74.34 billion at the end of the fiscal 2024-25, an 8% increase compared to the previous year.
Debt servicing is projected to approach $5 billion by the end of FY26. In FY2024-25, Bangladesh repaid $4.086 billion, including principal repayment and interest.
According to ERD data, foreign debt repayments in July of FY26 rose by 15.8% compared to July of FY25, when Bangladesh had paid a total of $385.7 million in principal and interest.
Principal repayments alone increased by 23.7%, reaching $327.7 million in July this year, up from $264.9 million in the same month last year.
Meanwhile, interest payments fell slightly due to a drop in the Secured Overnight Financing Rate (SOFR), decreasing by 1.5% compared to July of the previous fiscal year. Interest paid last July was $120.8 million, which dropped to $118.96 million this year.
Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development (InM), said repayment pressure is rising as loans taken during the previous government for development projects and budget support enter their repayment periods.
Many of these loans, with short grace periods, higher interest rates, and commercial-like terms, have added to the burden. With low revenue collection, Bangladesh's reliance on foreign loans has grown, he said, emphasising the need to ensure timely repayment and recommending boosting export earnings and remittances.
Foreign aid disbursements down, commitments up
According to an ERD report, disbursements in July of FY26 have decreased to $202.44 million compared to $358.3 million in the same month last year, even though the implementation of development projects had been stalled due to political reasons.
Officials say political instability and project disruptions persist, with many contractors yet to return to sites after last year's government change.
The Asian Development Bank (ADB) made the largest disbursement in July of FY26, releasing $77.50 million. The World Bank disbursed $59.07 million, Japan $17.24 million, and India $13.62 million.
The government has set a disbursement target of $9.22 billion for the current fiscal year.
Meanwhile, foreign aid commitments from development partners have increased by over 400% to $83.5 million in July of the current fiscal year, compared to $16.4 million last year.
In July, it received $6 million in commitments from the World Bank, while major development partners such as ADB, AIIB, and Japan did not make any commitments during this period.
