Outstanding external debt rises to $77.28b in FY25

Infographics: TBS

Bangladesh's total government external debt rose to $77.279 billion as of 30 June 2025, up from $68.822 billion a year earlier, according to the Flow of External Resources into Bangladesh 2024–25 report published by the Economic Relations Division (ERD). The increase of $8.457 billion over the year reflects both new borrowing and the impact of exchange rate movements. During FY2024–25, net government external borrowing stood at $5.832 billion.

The ERD report shows that the US dollar continued to account for the largest share of Bangladesh's external debt, although its share declined slightly to 37.7 percent in FY2024–25 from 38.35 percent a year earlier. Net disbursements of dollar-denominated loans from new bilateral creditors, including Russia, contributed to maintaining the dollar's dominance in the debt stock. By the end of the fiscal year, outstanding US dollar–denominated debt increased to $29.138 billion, compared with $26.396 billion a year earlier.

SDR-denominated debt remained the second-largest component of the external debt portfolio, accounting for 33.40 percent in FY2024–25, down from 35.09 percent in the previous year. Only the World Bank and the Islamic Development Bank provide SDR-denominated loans, while the Asian Development Bank issues single-currency loans. Although disbursements continued during the year, they were insufficient to offset repayments, resulting in a declining SDR share and a reduction in overall currency diversification. According to the ERD, frequent appreciation of the US dollar against the SDR and other currencies added $2.51 billion to the debt stock in dollar terms during the year.

The share of Japanese yen–denominated debt increased significantly, with outstanding yen loans rising to $15.120 billion, representing about 20 percent of total external debt, up from $11.947 billion, or 17 percent, a year earlier. In US dollar–equivalent terms, the share of yen-denominated debt increased to 26.36 percent, mainly due to the appreciation of the Japanese yen against the dollar. ERD officials expressed concern that the yen is a volatile currency and warned that further appreciation could increase debt servicing pressure. The value of one Japanese yen rose from $0.0063380 in FY2023–24 to $0.0069125 in FY2024–25, increasing Bangladesh's debt stock by around $1 billion in dollar terms.

The ERD noted that although SDR-denominated debt reduces reliance on a single foreign currency, it also exposes the portfolio to exchange rate risk. With more than one-third of the debt stock denominated in SDR, appreciation of the US dollar against the SDR can reduce the debt stock in dollar terms even when new loans are added, while most SDR loans are repaid in US dollars. At the same time, any depreciation of the taka against foreign currencies increases debt servicing costs in local currency terms.

Despite the rise in external borrowing, Bangladesh's external debt indicators remain well within internationally accepted thresholds. As of 30 June 2025, the ratio of government external debt to GDP stood at 18.99 percent, far below the 40 percent threshold, while the ratio excluding government-guaranteed debt was 16.81 percent. Based on these indicators, the World Bank continues to classify Bangladesh as a "less indebted" country.

Former World Bank lead economist Dr Zahid Hussain said that international financial institutions still assess Bangladesh's overall external debt risk as moderate, but cautioned that the main challenge lies in rising debt servicing pressure. He noted that although the total debt remains manageable relative to the size of the economy, the combined burden of principal and interest payments has increased significantly relative to foreign currency earnings.

Dr Hussain said higher remittance inflows in the current fiscal year have so far prevented any major balance-of-payments stress, but warned that pressure will intensify in the coming years as the grace periods of several large infrastructure projects expire. Repayments for projects such as the Rooppur Nuclear Power Plant and the Karnaphuli Tunnel are expected to begin in phases, gradually increasing demand for foreign exchange.

He stressed that future borrowing decisions should focus not only on maintaining a low debt-to-GDP ratio, but also on whether new loans will generate foreign exchange earnings. Ensuring adequate returns from existing debt-financed projects, restructuring or repurposing questionable projects, and using rescheduling options where necessary will be critical to sustainable debt management. He added that recent changes in the currency composition of debt should not be viewed as an immediate risk signal, as diversification among the US dollar, SDR, and Japanese yen helps offset exchange rate volatility and stabilise the debt portfolio.

According to ERD data, Bangladesh's principal repayment obligations will continue to rise in the coming years.