Foreign debt servicing rises to $7.09b

Foreign debt servicing by the government and its guaranteed loans rose 17 percent to $7.09 billion at the end of June in the last fiscal year.

The amount ate up around 76 percent of the total grants and loans of $9.3 billion that Bangladesh received in the fiscal year (FY) 2024-25.

Of the total repayment, $5 billion was principal, including $2.6 billion in state-guaranteed loans taken by public agencies. For example, Bangladesh paid $1.41 billion to settle crude oil import bills. The remaining $2.08 billion went to interest payments, according to data from the Economic Relations Division (ERD).

This marks another year of rising debt servicing costs for Bangladesh, which have more than doubled over the last five years. The government repaid $6.08 billion in principal and service charges to foreign lenders in FY24, double the $3.3 billion paid in FY21. Debt servicing crossed the $1 billion mark for the first time in FY13.

At the end of FY25, Bangladesh’s foreign debt stock stood at $87.3 billion. Of this, $77.28 billion was government debt, while the rest was government-guaranteed debt taken by public sector agencies.

The debt stock rose around 12 percent from the previous year. External debt accounted for 18.99 percent of the country’s Gross Domestic Product, well below the 40 percent threshold.

Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development (InM), said the rise in debt repayment reflects the end of the grace period for some foreign loans, many of which are in their final stages.

He added that many loans are not soft loans but hard loans with high interest rates and short grace periods, which will increase repayment pressure in the near future.

Mujeri, a former director general of the Bangladesh Institute of Development Studies, said the previous government borrowed heavily to fund large projects, and borrowing continued under the current government. With many projects now at their final stages, principal repayments have begun, pushing up debt servicing costs.

He added that significant budgetary support in recent years, provided to help the country recover from the coronavirus pandemic, has also increased loan repayments.

Global interest rate increases are another factor, although the ERD said interest rate risk is limited because most external loans are obtained at concessionary fixed rates.

Citing the World Bank’s classification, the ERD said that all indicators remain below threshold levels, categorising Bangladesh as a “less indebted” country.

However, Mujeri stressed that the government needs to strengthen its loan repayment capacity.