Outstanding external debt rises to $74b in FY25

Infographics: TBS

Bangladesh's outstanding public sector external debt rose to $74.34 billion at the end of the 2024-25 fiscal year, marking an 8% increase compared to the previous year, according to preliminary estimates from the Economic Relations Division (ERD).

However, ERD officials said the final figure could rise or fall once currency fluctuations are fully adjusted in the final accounts.

They clarified that the data, published last Sunday, cover only loans contracted by the central government for development projects and budget support. Government-guaranteed loans are not included, nor are loans provided by the International Monetary Fund.

In FY24, external debt stock stood at $68.82 billion. Over the past five years, the burden has risen sharply, by about 46%, from $50.88 billion in FY21.

According to the ERD, foreign loan disbursements in FY24 amounted to $8.11 billion. In the just-ended fiscal year, the government repaid $2.60 billion in principal to development partners. This figure was calculated by adding the disbursements made in the FY25 to the outstanding amount from FY24 and then subtracting the principal repayments.

ERD officials said disbursements increased as work on several large projects was completed or reached their final stages. These include the Rooppur Nuclear Power Plant, MRT Line-6 of the metro rail, the Padma rail link, the Karnaphuli tunnel and the third terminal of Hazrat Shahjalal International Airport.

They noted, however, that budget support loans played a bigger role than project loans in pushing up the outstanding debt in FY25.

As part of a strategy to ease future repayment pressure, the government avoided taking on new loans for major mega projects. Instead, to support foreign exchange reserves, it took a record $3.41 billion in budget support loans during the fiscal year, all of which have already been disbursed.

The previous highest budget support borrowing was in FY22, when Bangladesh received $2.597 billion.

ERD officials also expressed concern about the rising share of yen-denominated debt, warning that repayments could become more challenging due to currency volatility. 

The Japanese yen, they said, is a volatile currency, and its movement against the US dollar has already increased Bangladesh's debt burden by around $1 billion.

In FY24, the value of one yen was equivalent to $0.006338, which rose to $0.0069125 in FY2024-25. Officials cautioned that further fluctuations could increase repayment risks in the future.

Masrur Reaz, chairman and chief executive officer of Policy Exchange Bangladesh, said the interim government had been cautious in taking on new external loans for development projects and had avoided large-scale borrowing for mega projects.

He said the government reviewed projects in the foreign loan pipeline and refrained from borrowing for some of them. 

"However, to stabilise the macroeconomic situation, it took record levels of budget support from the World Bank, the Asian Development Bank and the IMF, although IMF loans are not reflected in the ERD figures.

"These budget support loans helped the balance of payments and foreign exchange reserves, but they also increased the overall external debt burden," he added.

Masrur Reaz warned that while borrowing is rising, repayments are also increasing sharply. He said external debt servicing could rise by as much as 65%, making it essential for Bangladesh to proceed with greater caution.

He advised against taking on large mega loans or borrowing under rigid or harsh conditions, saying only priority loans that can deliver quick economic returns should be considered.

Meanwhile, ERD data show that Bangladesh's pipeline of external loans and grants stood at $42.61 billion at the end of FY25, almost all of it in the form of loans. This was slightly lower than the $42.85 billion recorded at the end of the previous fiscal year.