Foreign debt repayment outpaces inflow in first 7 months of FY26

Infographics: TBS

Bangladesh has, for the first time in the current fiscal year, repaid more in foreign loans than it received in disbursements, according to the latest government data.

Figures published today (26 February) by the Economic Relations Division (ERD) show that development partners disbursed $2.641 billion between July and January of the 2025-26 fiscal year. During the same period, Bangladesh repaid $2.676 billion in principal and interest on previously taken foreign loans.

ERD officials said disbursements fell partly because project implementation slowed during the election period. At the same time, repayments have increased as grace periods on many past loans from development partners have expired.

Officials stressed, however, that when the full fiscal year is taken into account, total repayments are not expected to exceed total disbursements. 

In the previous fiscal year, Bangladesh repaid $4.086 billion, while total disbursements stood at $8.56 billion. A similar pattern is expected by the end of the current fiscal year, even if repayments rise.

Officials also noted that there is a positive aspect to higher repayments. As disbursements increase, outstanding debt liabilities also rise. By contrast, when repayments are made, the stock of external debt declines.

Disbursements down, repayments up

According to ERD data, foreign loan disbursements in the first seven months of the current fiscal year were 32.39% lower than in the same period a year earlier. In July-January of the previous fiscal year, disbursements totalled $3.938 billion.

Repayments, meanwhile, increased by 10% compared with the same period last year. Between July and January of the previous fiscal year, Bangladesh repaid $2.418 billion.

Loan commitments from development partners have also declined. 

In the first seven months of fiscal year 2025-26, new commitments fell by 3.26% year-on-year. Between July and January, Bangladesh signed new loan agreements or secured commitments worth about $2.274 billion, down from $2.350 billion in the same period of the previous year.

ERD sources said last year's student-led uprising, the fall of the government, and instability within the administration, as well as a lack of confidence among development partners, had contributed to lower foreign loan commitments.

Although the situation has improved this fiscal year, the interim government, till the end of its tenure, remained highly cautious about taking on foreign loans. As a result, there has been little momentum in securing new external loan commitments so far this fiscal year. 

Disbursement of foreign loans has also declined for the same reason, although officials expect commitments to increase under the newly elected government.

'Net flow' turns negative

Mustafa K Mujeri, executive director at the Institute for Inclusive Finance and Development (InM), said foreign assistance flows are closely linked to the prevailing economic context.

"Development partner countries and organisations generally feel more comfortable committing large loans and assistance to stable governments with the capacity for long-term policymaking," he said.

"As a result, during a transition to a new government or when there is policy uncertainty, it is normal for new foreign loan commitments to fall and for disbursements to slow. That is why the flow of foreign assistance has recently been relatively low," he explained.

"On the other hand, grace periods for loans taken for various mega and development projects in the past are now ending, and repayment time has arrived. So, the country is having to repay more in principal and interest than it is receiving in new loans. 

"This is turning the net flow of foreign loans negative – meaning more money is going out in repayments than is coming in as assistance. It is also creating additional pressure on foreign exchange," he added.

Mujeri said with the newly elected government now in office, long-term challenges would need to be addressed through realistic and priority-based development planning.

"Projects that are economically urgent and capable of generating high impact should be prioritised in attracting foreign assistance and investment," he said. 

"At the same time, coordination with development partners must be strengthened, project implementation capacity improved, and foreign direct investment increased. Otherwise, debt servicing pressure will rise further in the future, the gap in foreign assistance could widen and overall economic management will come under greater strain," Mujeri added.

According to ERD data, Russia disbursed the highest amount during July-January, releasing $576.04 million, mainly for the Rooppur power plant project.

The World Bank disbursed $555.94 million over the same period, while the Asian Development Bank (ADB) released $536.64 million.

Other disbursements included $220.45 million from China, $183.51 million from Japan, and $118.39 million from India.

In terms of new commitments, the largest – $1.269 billion – came from the Asian Development Bank in the first seven months of the fiscal year. The World Bank committed $265.50 million, while countries belonging to the European Union pledged $391.42 million over the same period.