Debt payments significantly surged in 9-month of FY24

Staff Reporter :
Bangladesh’s debt payment in the first nine months of the current financial year of 2023-24 stood at $2.5 billion, witnessing a record escalation of 48.6 per cent year-on-year compared to the same period of the previous of FY23.

Of the payment from July to February of the current FY24, around $1.5 billion has been paid as principal amount and the rest $1.05 billion as interest, as per the latest data from Economic Relations Department (ERD).

The ERD update also showed that the overall commitment from foreign lenders grew by 135 percent year on year to $7.2 billion in the July-March period of FY24.

However, disbursement only increased by 5 percent year on year to $5.6 billion in the nine months leading up to the end of March 24 this year.

Experts have pointed out that the quick growth in debt payment has been attributed to maturity of many short term borrowings taken for development projects on high interest rate.

The high growth in debt payment has come against the backdrop of the dollar shortage persisting since April 2022.

This trend is constraining the government’s fiscal capacity, as a portion of these loans is being used for repayment.

To address the potential burden of future payments, they recommend that the government re-evaluate projects in the pipeline and assess their expected returns and timelines.

They also advised the government to boost revenue, exports, and the inflow of remittances to counter dependency on foreign loans and to invest in “vanity” projects with foreign debts.

By contrast, officials have stated that loans taken from foreign sources now have a shorter grace period. Additionally, interest rates are now tied to the global reference rate — the Secured Overnight Financing Rate (SOFR). This rate replaced the London Interbank Offered Rate (Libor) last year.

In recent periods, the SOFR rate has seen a mentionable increase.

Meanwhile, in a recent study Centre for Policy Dialogue (CPD) revealed, between fiscals 2010-11 and 2022-23, total external debt increased by three times, while debt servicing rose 2.6 times and in FY24, Bangladesh is expected to borrow $10 billion from different external sources.

At the end of June last year, Bangladesh’s external debt stood at $98.9 billion and over the next six months, it crossed the $100 billion mark.