Fiscal strain mounts as govt seeks $1.9b costly loans
The government is moving ahead with plans to secure around $1.9 billion in external financing as budget support, with a large portion — about $1.6 billion — expected to come from high-interest, non-concessional sources.
At an exchange rate of Tk 122.95 per US dollar, the total borrowing amounts to nearly Tk 23,360.5 crore, raising concerns among economists over the long-term burden of costly external debt.
Several borrowing proposals have already been approved, with funds expected from four major development partners—the Asian Development Bank (ADB), Japan International Cooperation Agency (JICA), Asian Infrastructure Investment Bank (AIIB), and the OPEC Fund for International Development (OFID).
Of the total planned financing, around $1.05 billion is expected from ADB, $500 million from JICA, $250 million from AIIB, and $100 million from OFID.
A significant part of the package, nearly $1.6 billion, is likely to be sourced under relatively strict terms, with interest rates reaching as high as 5.08 per cent.
By comparison, concessional loans generally carry interest rates of around 1.5 per cent, with repayment periods of up to 25 years and grace periods of about five years.
Non-concessional loans, however, usually come with shorter grace periods of around three years and repayment schedules of about 12 years, increasing repayment pressure.
The proposed borrowing framework was discussed at a recent meeting of the Standing Committee on Non-Concessional Loans at the Planning Ministry in Sher-e-Bangla Nagar, chaired by Finance and Planning Minister Amir Khasru Mahmud Chowdhury.
Although officials said the final terms have yet to be settled, sources at the Economic Relations Division (ERD) indicated that most of the loans are expected to come with tighter conditions.
Analysts warned that growing dependence on such borrowing, without a parallel rise in domestic revenue or tighter control over public expenditure, could deepen fiscal pressure in the coming years.
Economists said reducing unnecessary expenditure—such as non-essential development projects, excessive foreign travel, and administrative inefficiencies—could help lower the need for high-cost borrowing.
Without stronger fiscal discipline, they cautioned, the country could face a rising debt burden and greater repayment risks.
Part of the borrowed funds will support major infrastructure projects, including a $300 million ADB loan for upgrading the Dhaka–Sylhet corridor into a four-lane highway with service lanes across around 210 kilometres.
The project, costing more than Tk 16,918 crore, is scheduled for completion between 2021 and 2026.
In addition to project financing, a major share of the funds will be used as budget support for economic reforms and macroeconomic stability.
ADB is expected to provide $750 million in budget support, while JICA will contribute $500 million, AIIB $250 million, and OFID $100 million to help ease fiscal pressure and support broader economic reforms.
Bangladesh’s external debt situation is also becoming tighter. ERD data show that during July–February, the country received $3.053 billion in foreign loans and grants, while repayments reached nearly $2.9 billion.
The narrow gap between inflows and repayments reflects growing debt servicing pressure.
With interest costs rising and repayment periods shrinking, experts have urged the government to adopt a more cautious borrowing strategy, strengthen domestic revenue collection, and ensure more efficient public spending to maintain fiscal stability and avoid future financial strain.
