Bangladesh repays $3.5b foreign debt in 10 months of FY25

Highlights:

• Foreign debt servicing up 24.73% YoY in July–April FY25
• Principal payments $2.21b – up 32.86%
• Interest payments $1.297b – up 12.95%
• Repayment in 10 months exceeds $3.37b repaid in FY24
• Officials say increase driven by ending grace periods, higher interest rates
• Expensive loans from previous govt had short grace periods, high interest rates
• Interim govt refraining from new large-scale loans to reduce repayment stress
• Disbursements, commitments to rise in final months of FY2

Bangladesh repaid $3.5 billion in foreign loans during the first 10 months of the current fiscal year 2024-25, exceeding the $3.37 billion repaid in the entire previous fiscal.

Data from the Economic Relations Division (ERD) released today (29 May) show a 24.73% year-on-year rise in total external debt repayments in the July-April period of FY25. In the same corresponding period of FY24, the amount repaid was $2.81 billion.

Officials said the rise is due to the repayment burden at the end of grace periods for large infrastructure and budget-support loans, along with higher market-based interest rates.

Of the total repaid in FY25, principal repayments amounted to $2.21 billion – up 32.86% from $1.663 billion in the same period last year. Interest payments rose by 12.95%, reaching $1.297 billion compared to $1.148 billion a year earlier.

Economists said Bangladesh took on several large and expensive loans during the previous government's tenure. Many of these loans had short grace periods and high interest rates, leading to a growing repayment burden.

Several more grace periods, including loans for the Rooppur Nuclear Power Plant, are set to expire within the next one to two years, to further put pressure on the budget, they said.

M Masrur Reaz, chairman and CEO of Policy Exchange, said Bangladesh's debt situation has worsened since FY17 and blamed it on indiscriminate borrowing for poorly assessed projects, many of which lacked proper feasibility studies or economic returns.

He said foreign loans were often used because revenue mobilisation remained weak. "As a result, external debt has doubled over the past seven years, raising concerns over both the pace and rationale of borrowing."

Reaz added that the country has increasingly relied on hard-term loans, which have higher interest rates and shorter repayment periods. Following Covid-19 and the Russia–Ukraine war, Bangladesh also sought budget-support loans for balance-of-payment stabilisation. 

"Some of these loans have now entered the repayment phase," he told The Business Standard.

He warned that the current debt situation is constraining fiscal discipline, calling for a revised fiscal strategy that balances repayment capacity with future borrowing needs.

Commitments, disbursements down

Despite the increase, foreign loan commitments and disbursements have declined in FY25.

According to ERD, loan commitments between July and April fell 43.97% to $4.259 billion, compared to $7.603 billion in the same period last year.

Disbursements also dropped by 17.83%, falling to $5.163 billion from $6.284 billion during the same period last year.

ERD officials said implementation challenges have emerged since the interim government assumed office, leading to project delays and reduced foreign disbursement.

At a recent press briefing, Planning Adviser Wahiduddin Mahmud said several projects stalled after the change in government, with some contractors and project directors leaving. Many of these were foreign-funded.

He also said the government is refraining from seeking new loans for large-scale projects to reduce repayment stress. The only major new agreement was signed with the World Bank for a container terminal project.

Officials said the interim government also adopted a cautious approach to long-term borrowing, which contributed to the lower number of signed agreements.

However, loan contracts for projects related to human development, employment, and rural development may still be signed by the end of the fiscal year, possibly raising total commitments.

ERD officials expect disbursements and commitments to rise in the final months of FY25, mainly due to upcoming budget-support loans. 

The government is currently in talks with the World Bank, ADB, Japan, and AIIB for $2.2 billion in support, which may be finalised by June, they said.

Budget-support loans are typically disbursed within a week of signing. So far this fiscal year, the government has received $1.2 billion in such support.

According to ERD data, the highest loan commitment between July and April came from the World Bank, with agreements totalling $1.79 billion. Japan pledged $840 million, ADB committed $700 million, and AIIB promised $160 million.

In terms of disbursement during the July–March period, ADB led with $1.40 billion, followed by the World Bank with $1.16 billion. Japan disbursed $905 million, Russia $675 million, China $321 million, and India $152 million.