Foreign loan repayment, interest cost hit record

Bangladesh’s debt servicing cost surged past the $300 crore-mark for the first time in the outgoing fiscal year that ended 30 June, while interest payments also rose by a record 44%, according to the Economic Relations Division (ERD) data published Sunday.

The country had to pay $336 crore in debt servicing costs in fiscal year 2023-24 up by nearly 26% from the previous fiscal year. The amount paid for principals in FY2023-24 was $201 crore, up 16% from the previous 12-year period.

More worryingly, the $135 crore in interest payments in the outgoing fiscal year was a 44% rise, driven by a spending spree on mega projects and surging borrowing costs amid local currency’s devaluations.

The interest payments made another record by breaching the $100 crore-mark in a year for the first time.

Foreign debt servicing costs have been surging over the past two years, piling pressure on the country’s already shaky foreign currency reserves and shrinking the fiscal capacity to invest in development initiatives.

Foreign loan disbursements have been rising as well, due to the confidence in the economy among development partners and investors. In the outgoing fiscal year, disbursement surged annually by $55 crore to $986 crore.

And yet, the government’s increasing access to foreign loans could turn into a curse rather than a blessing, if the government cannot widen the tax net, boost revenue collections and increase foreign currency inflows by means of remittances and exports.