Foreign funding slows, debt bills rise

Bangladesh’s external financing inflows weakened sharply in the just-concluded 2025-26 fiscal year, with foreign loan commitments falling to their lowest level in 14 years even as the country’s external debt servicing reached a record high, reflecting mounting pressure from repayments on previously contracted loans.

According to the latest data released by the Economic Relations Division (ERD) on Sunday, foreign assistance commitments from development partners and international lending agencies declined by 37 per cent to US$5.24 billion in FY2025-26, down from US$8.32 billion in the previous fiscal year.

Foreign aid disbursements also fell, although at a slower pace. Bangladesh received US$8.07 billion in external assistance during FY26, compared with US$8.57 billion in FY25.

Project aid disbursements declined to US$8.02 billion from US$8.52 billion, while grant disbursements rose to US$553.95 million from US$454.56 million.

Economists and analysts attributed the decline in loan commitments and disbursements to the slowdown in development activities following the political instability that began after the Awami League government was ousted during the 2024 mass uprising.

They said the previous government had borrowed heavily from external sources to finance large infrastructure projects.

While many of those projects have now been completed and others are nearing completion, repayments on the loans have already begun, leading to a steady rise in debt servicing over the past two years.

ERD data showed that Bangladesh recorded its highest-ever annual external debt repayment in FY26.

The country repaid US$4.494 billion in principal and interest during the fiscal year, compared with US$4.087 billion in FY25, highlighting the growing repayment burden as earlier borrowings enter their repayment phase.

In FY24, Bangladesh’s external debt servicing totalled US$3.37 billion, comprising US$2.02 billion in principal repayments and US$1.35 billion in interest payments.

During FY26, principal repayments increased to US$2.95 billion from US$2.60 billion, while interest payments rose to US$1.54 billion from US$1.49 billion.

In local currency terms, total external debt servicing climbed to Tk54,957 crore, up from Tk49,391 crore a year earlier.

Finance Minister Amir Khosru Mahmud Chowdhury recently informed Parliament that Bangladesh’s outstanding external debt had reached approximately US$78 billion as of February 2026, underscoring the country’s growing repayment obligations.

Parliamentary data also showed that Bangladesh borrowed nearly US$86 billion in foreign loans between FY2008-09 and FY2025-26, while repaying just over US$31 billion in principal and interest over the same period.

The figures indicate a substantial net increase in external debt, driven largely by infrastructure investment and financing needs arising from external economic shocks.

Bangladesh is now expected to spend around US$26 billion on external debt servicing between 2026 and 2030—an amount equivalent to nearly two-thirds of what it repaid over the previous five decades.

Looking further ahead, external debt repayments could reach US$51 billion by 2035, with annual repayments projected to peak at around US$5.5 billion by the end of the decade.

Although Bangladesh’s external debt-to-GDP ratio remains relatively moderate at around 19 per cent, economists cautioned that other debt sustainability indicators are becoming increasingly challenging.

They noted that the external debt servicing-to-revenue ratio has risen to 16.5 per cent, approaching the International Monetary Fund’s risk threshold and reflecting growing pressure on public finances amid persistently weak domestic revenue mobilisation.

The fiscal pressure has been compounded by a significant revenue shortfall.

According to National Board of Revenue (NBR) officials, the revenue authority collected Tk4.10 trillion (Tk410,390 crore) during FY26 against a target of Tk5.03 trillion (Tk503,000 crore), leaving a shortfall of Tk926.1 billion (Tk92,610 crore), or around 18.4 per cent below the annual target.