Foreign debt repayment toes line of mounting external loan

Staff Reporter :
Bangladesh is poised to confront heightened pressures in repaying its burgeoning foreign debt, which could extend until 2062 if the country refrains from acquiring new loans.

The repayment challenge is primarily attributed to the initiation of repayments for loans secured under stringent conditions from global partners like Russia, China, and India.

The Policy Research Institute (PRI) has raised alarms over the rapid increase in debt repayment obligations.

Ahsan H Mansur, Executive Director of PRI, highlighted a 30% spike in repayment amounts in the last fiscal year alone, attributing it to the onset of repayments for high-stakes loans from Russia, China, and India.

This surge reflects the beginning of a challenging era for Bangladesh’s fiscal management.

In the financial year 2023-24, the government’s foreign debt repayment is projected to overshoot the budgeted $2.79 billion, hitting an estimated $3.57 billion, marking a 33.52 percent increase.

This escalation is driven by record external borrowing aimed at financing extensive development projects.

The trend underscores a doubling in loan payments over the past six years, with repayments poised to climb to $4.5 billion by 2025-2026 and further to $5.15 billion by 2029-30, based on finance ministry forecasts.

As of the end of December last year, Bangladesh’s foreign debt surged to $100.64 billion, up from $96.55 billion in the preceding quarter, per Bangladesh Bank data.

This figure represents a more than 200 percent increase over the decade, from $29.3 billion in June 2013 to $100 billion by December 2023.

The government shoulders nearly 80 percent of this external debt, with the private sector accounting for the remainder.

The ascent in debt repayment began notably with the commencement of repayments on Chinese loans in the last two to three years, with Russian loan repayments now adding to the financial strain.

Despite these challenges, Bangladesh’s external debt-to-GDP ratio remains below the IMF’s cautionary threshold of 40 percent, suggesting a managed yet precarious balance.

China emerges as the principal creditor, with Bangladesh owing $3.08 billion. The repayment scenario underscores the necessity for prudent fiscal management and strategic project implementation to ensure economic stability and growth.

Mansur advocates for judicious project selection and adherence to initial budgets and timelines, especially for ventures undertaken under stringent loan conditions.

This strategic approach is crucial for maintaining fiscal health and ensuring the long-term viability of development projects amidst escalating repayment obligations.

“Pressure of repayment just started. The amount of repayment rose by 30 per cent in the last fiscal because repayment of loans taken from Russia, China and India with tough conditions has begun, ” he said.

In terms of economic considerations, loans with tough conditions are not viable for several projects. For viable projects Ahsan H Mansur stressed to implement projects on time and complete their work within the initial budget.