Foreign loan repayments outpace disbursements in Q1 of FY26

Business Report :

Foreign loan repayments have surpassed new disbursements in the first quarter Q1 (July-September) of the current fiscal year 2025-26, indicating growing pressure on Bangladesh’s external financing position amid slow project aid inflows and rising debt-servicing costs.

According to the Economic Relations Division’s (ERD) latest Foreign Assistance Monthly Report (Provisional), total loan disbursements during the quarter stood at US$1.04 billion, while repayments including both principal and interest reached $1.28 billion, exceeding fresh inflows by more than $240 million.

Debt servicing increased by 13.6 percent year-on-year, totalling $1.28 billion in Q1 FY26 compared to $1.13 billion during the same period last year. Of this amount, $816.88 million was paid as principal and $462.96 million as interest. In local currency, total debt servicing stood at Tk15,591.69 crore, up from Tk13,412.31 crore a year earlier.

Officials attributed the rise in repayments to the maturity of earlier concessional loans and a shift toward costlier bilateral and non-concessional borrowing with higher interest rates and shorter repayment terms.

The Asian Development Bank (ADB) and the International Development Association (IDA) were the two largest sources of foreign aid during the quarter, disbursing $187.72 million and $322.63 million respectively. Russia followed with $315.39 million, mostly linked to infrastructure and power projects. Other development partners included India ($62.83 million), Japan ($40.67 million), AIIB ($0.40 million), and others ($218.95 million). Notably, no disbursement came from China, reflecting slower progress on ongoing projects.

Despite strong aid commitments totaling $910.67 million, actual fund releases lagged behind, revealing implementation bottlenecks.

Economist Dr Mustafa Kamal, executive director of the Institute for Inclusive Finance and Development (INM) and former chief economist of Bangladesh Bank, said the development points to structural stress in external debt management.

“When repayments start exceeding inflows, it signals a shift from a borrower’s advantage to a repayment-driven cycle,” he said, adding that Bangladesh must improve project efficiency and diversify exports to maintain external balance.

He further noted that sustained reforms in fiscal governance and greater access to concessional financing will be crucial to avoid future liquidity pressures.

With $1.28 billion repaid against $1.04 billion disbursed, Bangladesh effectively became a net payer to foreign creditors in the first quarter of FY26.

Analysts warn that while the country’s debt level remains manageable, the window for low-cost financing is narrowing, making strong fiscal discipline and project management essential to maintain stability in the coming months.