External debt drops by $2.6b as repayment burden surges

Highlights:

• External debt fell $2.59 billion in first-quarter 2026
• Loan repayments exceeded new borrowing, reducing debt stock
• Exchange-rate fluctuations significantly lowered reported dollar-denominated debt
• Public-sector external debt drove most of the decline
• External debt-servicing costs expected to rise through FY30
• Weak investment and business activity curbed private foreign borrowing

Bangladesh's outstanding external debt fell by $2.59 billion in the first quarter of 2026 as loan repayments exceeded fresh disbursements and exchange-rate movements reduced the dollar value of existing liabilities.

Data released by Bangladesh Bank yesterday showed that the country's outstanding external debt stood at $110.93 billion at the end of March, down from $113.52 billion at the end of December. The figure stood at $112.22 billion at the end of September.

The decline was driven primarily by a reduction in public-sector external debt, which fell to $90.91 billion in March from $93.46 billion in the previous quarter.

Infograph: TBS

An official at the Economic Relations Division (ERD) attributed the decline to three key factors: exchange-rate movements, increased loan repayments and lower net external borrowing.

According to the official, fluctuations in exchange rates can significantly affect the reported dollar value of external debt. Liabilities denominated in currencies such as the euro may appear higher or lower in US dollar terms depending on exchange-rate movements, even if the underlying debt stock remains unchanged.

The official said that if the same stock of external debt is valued using different exchange rates, the reported amount can vary by as much as $2 billion to $3 billion, illustrating the impact of currency fluctuations on headline debt figures.

The second factor is the rise in principal repayments as several large infrastructure projects financed by China, Japan and the Asian Development Bank have entered their repayment phases. Bangladesh has begun making repayments on projects including MRT Line-6 and the Karnaphuli Tunnel, contributing to the reduction in outstanding debt.

The third factor is that debt repayments are currently exceeding fresh external loan inflows, resulting in a net decline in the debt stock.

The ERD official said the fall in outstanding debt should not necessarily be viewed as a negative development because part of the reduction reflects exchange-rate adjustments, while another part reflects higher repayments of existing obligations.

Debt-servicing burden set to rise

Despite the decline in outstanding debt, Bangladesh is entering a period of significantly higher external debt-servicing obligations.

According to an ERD report, the country will need to pay nearly $26 billion in external debt servicing between the current fiscal year and FY30.

The scale of the burden is notable in historical terms. Since independence in 1971, Bangladesh has paid around $40 billion in external debt servicing.

Debt-servicing payments stood at about $4 billion in the previous fiscal year and are projected to rise to $4.74 billion in the current fiscal year, $4.87 billion in FY27 and eventually peak at $5.5 billion in FY30.

Economists warn that the rising repayment burden could place increasing pressure on public finances at a time when the country continues to face elevated import and energy costs. They also caution that the repayment profile could become more challenging over the next decade as recently contracted loans enter their repayment periods.

Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, said, "As principal repayments are being made, outstanding debt will naturally decline. If new borrowing does not exceed repayments of principal and interest, the outstanding debt stock will continue to fall, while debt-servicing liabilities will increase."

Private-sector borrowing remains weak

Bangladesh Bank data also showed limited demand for foreign borrowing in the private sector, reflecting subdued business activity and weak investment.

Outstanding private-sector external debt stood at $20.02 billion at the end of March, compared with $20.06 billion in December, a decline of $38 million over the three months.

A senior Bangladesh Bank official said the main reason behind the decline was slower business activity and weaker new investment. As imports of capital machinery have fallen, demand for foreign financing has also declined.

The official noted that a large share of private-sector foreign borrowing is linked to trade finance. Lower demand for business expansion and investment has therefore reduced the need for external loans.

Bangladesh Bank data showed that private-sector credit growth rose marginally to 4.75% in April from 4.72% in March, which was the lowest rate on record.

Mustafizur said, "Although imports have increased over the past 10 months, exports have not grown correspondingly, suggesting that trade-based economic activity remains weak. As a result, demand for financing in this area has also remained subdued."