BD's foreign debt crosses $104b mark again

Bangladesh’s foreign debt burden has once again crossed the $104 billion mark, surpassing the threshold in September 2024.

Although the amount dipped slightly in December, it rose again to $104 billion by March this year. Economists say this is due to disbursements of previously pledged loans.

However, they stress that it is equally important to ensure efficient and appropriate use of these funds; otherwise, the country risks facing serious financial consequences.

Each year, the government seeks to bridge budget deficits through loans from domestic and external sources. Over the past 15 years, the now-ousted Awami League government undertook several ambitious infrastructure projects as part of implementing its expansionary budgets.

At the same time, with revenue collection falling short of expectations, dependence on foreign loans has increased significantly. Corruption, capital flight, and administrative inefficiencies have also placed pressure on economic stability, according to analysts.

Bangladesh Bank’s Executive Director and spokesperson Arif Hossain Khan said foreign debt rose by just $1 billion in March — part of earlier loan commitments — and these funds have been allocated to designated sectors and are being utilised by the relevant ministries.

In the just-concluded fiscal year, the interim government repaid nearly $6 billion in foreign loans, including $4.5 billion in direct government liabilities and $1.5 billion in repayments related to the Adani power project, the Rooppur nuclear plant, and coal imports for the Payra port. Notably, this substantial repayment did not create any pressure on the country’s foreign exchange reserves.

Officials said that during the tenure of the previous government, a severe dollar crisis led then-governor Abdur Rouf Talukder to repeatedly extend loan repayment deadlines, often relying on the reserves to make payments — causing a dramatic depletion of the forex reserve.

Now, dollar sales from the reserve have been completely halted. Loan repayments are being made by transferring dollars between banks. Increased remittance and export earnings, along with stricter control of money laundering, have improved dollar supply in the market.

As a result, despite record loan repayments, the reserve has remained stable. Furthermore, with a market-based exchange rate now in effect, the value of the dollar has started to decline — helping to ease inflationary pressure.

According to Bangladesh Bank data, $6.92 billion was added to the reserve from various sources in the last fiscal year. Even after foreign debt repayments, a net $2.48 billion was added to the reserve. Additionally, commercial banks settled around $1.5 billion in foreign loan payments during this time.

Sources close to the central bank stated that repayments of large-scale foreign loans for megaprojects and budget support, undertaken by the previous government, have become increasingly burdensome for the current administration.

The repayment of market-based, high-interest loans has only added to the strain. Economists have long advised caution regarding foreign borrowing, but the Sheikh Hasina-led government significantly increased external loans, ignoring these warnings. Until her departure from power, Sheikh Hasina’s administration borrowed $80.62 billion from foreign sources over 15 and a half years.

A review of Bangladesh Bank’s data shows that at the end of 2008, the government’s foreign debt stood at $22.79 billion. When the Awami League-led grand alliance took office on 6 January 2009, the debt grew by 39% over the next five years, reaching $31.79 billion by the end of 2013.

After returning to power in 2014, the pace of borrowing accelerated further. Between 2014 and 2018, foreign debt grew by 79.51%, reaching $57.07 billion by the end of 2018.

The third consecutive term of the Awami League (2019–2023) saw the sharpest rise, with foreign debt increasing by more than 76%. By December 2023, the outstanding foreign debt had surged to $100.64 billion. In the first six months of its fourth term, the government borrowed nearly $3 billion more, taking the total to $103.41 billion by the time of its fall.

Since then, foreign debt has grown modestly. As of March this year, the outstanding amount stood at $104.76 billion — an increase of $1.35 billion in nine months.

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said, “Whether the figure is $104 billion or something else, the key concern is whether the loan money is being used effectively and channelled into productive use on time. If not, this debt will become a future liability.”

Citing the Rooppur Nuclear Power Plant, he noted that its first unit was supposed to begin trial production by December 2024 — which did not happen. Now, initial generation is expected in 2026, and the second unit in 2027.

However, debt repayment has already begun. Although the government secured an 18-month grace period, the delay in implementation raises concerns over proper utilisation of the borrowed funds.

Dr Hussain further said, “The current government cannot simply evade responsibility by blaming the previous administration, since the bureaucratic machinery remains largely unchanged. Without structural reform, systemic failures will persist.”