Debt servicing burden set to surge in coming years
Bangladesh is heading into a period of mounting fiscal pressure as external debt servicing obligations are set to rise sharply over the next five years, exposing structural weaknesses in its narrow revenue base.
According to the Economic Relations Division (ERD), the country will need to repay nearly $26 billion in external debt between the current fiscal year and FY2030.
The scale of the obligation becomes more significant in historical context: in the 54 years since independence in 1971, Bangladesh has paid around $40 billion in debt servicing, yet almost two-thirds of that amount is due within just five years.
The growing repayment burden comes at a time when Bangladesh’s tax-to-GDP ratio has fallen below 7 per cent, the lowest among comparable economies.
This severely limits the government’s capacity to absorb economic shocks or expand public spending.
At the same time, external pressures — including the Covid-19 pandemic, the Ukraine war, domestic political instability and tensions in the Middle East — have further strained revenue collection, exports and remittance inflows.
Bangladesh’s external debt stood at $77.28 billion in June 2025, up from $68.82 billion a year earlier.
Debt servicing, which was about $4 billion in the last fiscal year, is projected to rise to $4.74 billion this year and peak at $5.5 billion by FY2030.
Economists warn that the rising repayment burden will place additional strain on public finances, particularly amid persistently high global energy prices.
They also caution that pressures could intensify further over the next decade as repayments on newly contracted loans begin.
Former World Bank Dhaka office lead economist Zahid Hussain described the situation as an “unavoidable reality”, warning that slower export and remittance growth could further weaken the economy.
He said weak revenue and foreign exchange earnings have already pushed Bangladesh from low to moderate debt risk, driven by deteriorating debt-to-revenue and debt-to-export ratios.
He also called for stricter scrutiny of loan-funded projects, particularly in the energy sector, to ensure repayment capacity.
While Bangladesh has so far avoided default, he cautioned that global shocks, LDC graduation and repayment delays could erode financial buffers and increase future borrowing costs.
The ERD report, prepared ahead of high-level meetings in Washington, highlights that Bangladesh has financed several large-scale infrastructure projects through external borrowing.
These include the Rooppur Nuclear Power Plant, Padma Rail Link, Karnaphuli Tunnel, Dhaka Metro Rail, Single Point Mooring project, Hazrat Shahjalal International Airport expansion, and the Jamuna Railway Bridge.
Many of these projects are now reaching the end of their grace periods, triggering the start of principal repayments.
For example, repayments for the Rooppur Nuclear Power Plant will begin in 2028 and are expected to exceed $500 million annually, while post-pandemic budget support loans are also entering their repayment phase.
Between FY2026 and FY2030, Bangladesh is projected to repay $25.99 billion, including $18.38 billion in principal and $7.6 billion in interest.
Total repayment obligations could rise to $51.33 billion over FY2026–FY2035. FY2030 is expected to be the peak year, with debt servicing reaching around $5.5 billion.
Economist Muinul Islam told The New Nation that Bangladesh must urgently avoid undertaking further mega projects to safeguard macroeconomic stability.
He also stressed the need to reduce unnecessary public expenditure at all levels of government.
He warned that global economic fallout from ongoing conflicts could have long-term consequences for Bangladesh.
Even if geopolitical tensions ease, he said the economy may continue to face strain due to lingering instability and external shocks.
However, the report notes that, based on average monthly remittance inflows of around $2.03 billion in recent years, less than three months of remittances would be sufficient to cover annual external debt payments even at their peak.
According to ERD estimates, Bangladesh would require about 37 years to fully repay its existing external debt stock, assuming no new borrowing. This implies that current liabilities could extend until FY2063.
In FY2025 alone, net external borrowing stood at $5.83 billion, with the total debt stock increasing by an estimated $8–9 billion annually.
Economists emphasise that avoiding a potential debt trap will require urgent structural reforms, including expanding export capacity, developing a skilled workforce, boosting remittance inflows, improving the investment climate and strengthening domestic revenue mobilisation.
