Megaprojects' mega bills are testing Bangladesh’s economy
Bangladesh's rapid infrastructure push is now facing mounting repayment pressures as rising debt-servicing costs strain the economy and test the sustainability of growth built on borrowed money
For years, Bangladesh earned praise for driving development through large-scale infrastructure financing, using both external and domestic borrowing to accelerate growth. That strategy showed visible economic gains. But now the sustainability of that model is being tested by the sharp rise in debt servicing costs.
Bangladesh's external debt reached $104.48 billion in 2024, up from $73.55 billion in 2020, marking a 42% surge in just five years, according to the World Bank's International Debt Report 2025. During this period, debt servicing nearly doubled, with annual repayments rising from $3.73 billion to $7.35 billion as major infrastructure loans entered their repayment phase.
The World Bank also reports that external debt now amounts to 192% of the country's export earnings and that 16% of exports are being used solely to service debt. These numbers suggest a rising vulnerability in Bangladesh's external position as foreign currency inflows struggle to keep up with the dollar obligations, leaving the country.
The burden of domestic debt has also grown, and interest payments are consuming a widening share of the national budget. "Our entire revenue intake is consumed by revenue expenditure; there is no surplus," says Professor Mustafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue.
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He said, "In the revenue budget, we have no residual balance. Consequently, our development budget — what we call the Annual Development Programme — is financed entirely either through domestic borrowing or external loans. This creates two problems: first, the overall stock of debt is rising; and second, the cost of debt servicing is also increasing."
As a result, interest payments on domestic borrowing have now become a major component of our revenue expenditure. Previously, after salaries and pensions of government employees, education used to be the second-largest item of revenue spending. Over the past three years, however, interest payments on domestic and external loans have overtaken it.
A decade ago, spending priorities looked very different; today, servicing past loans has become a dominant obligation.
The country will lose access to grants and concessional loans... and will have to rely more on commercial loans, associated with higher interest rates and shorter repayment periods.
Bangladesh's debt-to-GDP ratio was 37.41% in FY2023-24, which still appears moderate against global norms, remaining below the IMF's cautionary threshold of 55%. But this indicator alone masks deeper fragilities.
The true stress point lies in the country's limited capacity to generate revenue and foreign exchange relative to its growing debt servicing requirements. Over the coming years, these pressures are only expected to rise.
"External debt sustainability may face vulnerabilities because of rising debt stock, principal and interest payments," cautions Selim Jahan, former director of the UNDP Human Development Report Office. Bangladesh's forthcoming graduation from the Least Developed Country category in 2026 compounds this challenge.
"The country will lose access to grants and concessional loans... and will have to rely more on commercial loans, associated with higher interest rates and shorter repayment periods," he adds. In other words, borrowing will become more expensive just as repayment peaks arrive.
The ongoing depreciation of the taka has magnified the weight of foreign loans. Only a few years ago, a $1 cost Tk84; today, it has gone over Tk123. "More local currency would be needed to repay the same amount of foreign debt. It would further squeeze the resource envelope of the country," Selim Jahan said.
This exchange-rate effect means debt burdens are deepening even without new borrowing. Meanwhile, several of the most expensive infrastructure projects — such as power plants and metro rail — have yet to yield sufficient economic returns to support their own repayment cycles.
A large share of foreign assistance now goes directly to servicing old loans rather than financing new development, leaving little room for fresh investments that might help grow the revenue base. When borrowing merely finances repayments, the warning signs of a debt trap grow louder.
Our entire revenue intake is consumed by revenue expenditure; there is no surplus.
Bangladesh still retains foreign exchange earning capacity through remittances and garments, and much of its external borrowing has come through concessional channels. However, experts emphasise that what matters most is the trajectory.
"Together, these pressures constitute a dangerous trajectory," says Mustafizur Rahman, pointing out that Bangladesh is vulnerable to falling into a debt trap if the current imbalance persists. The warning is not that a crisis is imminent, but that slow-moving vulnerabilities are steadily tightening.
For Bangladesh to restore sustainability, a strategic shift is required. Both economists stress that boosting domestic revenue must become the core priority.
"If we can raise [the revenue-to-GDP] ratio, we will need to borrow less, and our debt servicing burden will be reduced," Mustafizur Rahman said. Currently, Bangladesh's tax-to-GDP ratio ranks among the lowest in the developing world. Without broadening the revenue base — particularly through greater reliance on direct taxes — debt servicing will continue to crowd out essential social and development spending.
To avert that future, the next government will need to make decisive choices. Revenue reform must be central: Bangladesh cannot continue operating with one of the lowest tax-to-GDP ratios in the developing world.
The NBR chairman has recently acknowledged that the country's tax structure is fundamentally imbalanced.
Tax policy restructuring must include institutional reforms, especially separating tax policy from tax collection, and a stronger shift toward direct taxation to improve fairness and resilience. At the same time, export diversification and stronger remittance channels are essential to stabilise foreign reserves. Selim Jahan insists that smart policies with a conducive investment environment would attract more foreign direct investment, reducing the pressure on foreign loans.
The next government must also place debt management at the heart of economic governance. A strict moratorium on low-return mega projects — especially those reliant on expensive borrowing, may prove essential.
Public spending must shift decisively toward education, health, institutional reform and export capacity — investments that generate long-term dividends rather than liabilities. The real challenge will be enforcing this discipline against political temptations.
"Prudent debt management is vital. Careful selection of new projects, improved project implementation are important. Huge projects, prestige projects, and projects without clear economic and social benefits should be stopped. In terms of tackling the rising debt-servicing of Bangladesh, a clear pathway should be chalked out for the next government," said Selim Jahan.
At the same time, the country's external balance requires strengthening through export diversification, remittance facilitation and policies that attract investment. Selim Jahan said, "A proactive policy for channelling more remittance would help build better foreign reserves. Similarly, smart policies with a conducive investment environment would attract more FDI."
