Foreign Debt: A Growing Burden on Bangladesh’s Economy

Foreign loans have long played an important role in financing the development of Bangladesh. As a developing country with limited domestic resources and growing demands for infrastructure, industrialisation, energy and social services, Bangladesh cannot entirely avoid external borrowing.

Foreign assistance can help overcome temporary financial difficulties, accelerate economic growth and create opportunities for future prosperity.

However, borrowing becomes a matter of serious concern when it turns into a habitual solution to economic problems rather than a carefully calculated development strategy.

The growing dependence on foreign loans, coupled with rising debt-servicing obligations, could gradually place Bangladesh in a difficult economic position.

What is particularly worrying is the possibility that an increasing portion of future borrowing may be required not to finance productive development but to meet existing debt obligations.

A loan is not inherently harmful. Its economic value depends on how it is utilised, how much it costs and whether the investment generates sufficient returns to repay the principal and interest.

Borrowing to develop productive infrastructure, expand industrial capacity, improve exports and strengthen human capital can contribute to national prosperity.

But borrowing for poorly planned projects, unnecessary expenditure or investments that fail to generate adequate economic returns can turn a development opportunity into a long-term financial liability.

The Growing Volume of Foreign Debt
The scale of Bangladesh’s external borrowing has increased considerably over the past decade. According to the World Bank’s International Debt Statistics 2026, Bangladesh’s total external debt stock reached approximately US$113.44 billion in 2025, compared with around US$38.77 billion in 2015.

This represents almost a threefold increase in ten years. Its external debt per capita stood at approximately US$646.

Although Bangladesh does not have the highest per-capita external debt in South Asia, its rapidly increasing debt burden deserves serious attention.

The country’s ability to repay depends not merely on the amount borrowed but also on national income, export earnings, foreign exchange reserves, revenue collection and the productivity of investments financed through borrowing.

The growing debt burden is particularly concerning because Bangladesh’s capacity to earn foreign currency remains vulnerable to fluctuations in international trade, commodity prices and remittance flows.

The Danger of Borrowing to Repay Borrowing
One of the most serious problems confronting heavily indebted developing countries is the growing pressure of debt servicing.

Every foreign loan carries an obligation to repay the principal and interest within an agreed period. When a country cannot generate sufficient foreign exchange through exports, remittances and investment, it may have to depend on fresh borrowing to meet existing obligations.

This creates a dangerous cycle. A government takes a loan to finance development, but when repayment becomes due, it struggles to mobilise the necessary resources. It then seeks another loan to meet the earlier obligation. Gradually, borrowing becomes a permanent feature of economic management.

The situation becomes particularly alarming when new loans are used to pay interest on previous loans rather than to finance productive activities. In such circumstances, the country does not necessarily increase its productive capacity; instead, it accumulates further liabilities.

The burden is ultimately transferred to future generations, who will have to repay debts incurred without necessarily receiving corresponding economic benefits.

Bangladesh must avoid falling into this trap. Foreign borrowing should not become a substitute for sound fiscal management, efficient revenue collection and a competitive export economy.

Debt Servicing and Foreign Exchange Pressure
Debt repayment is not simply an accounting exercise.

It has direct implications for a country’s foreign exchange position. Bangladesh needs dollars to import fuel, food, industrial raw materials, machinery and other essential commodities. It also needs foreign currency to meet international financial obligations.

When an increasing amount of foreign exchange is allocated to debt servicing, fewer resources remain available for essential imports and development activities.

The situation becomes more challenging when export growth slows, imports become expensive, remittance inflows weaken or the domestic currency depreciates. A loan contracted in dollars becomes more expensive to repay in taka when the domestic currency loses value.

Consequently, currency depreciation can increase the domestic burden of foreign debt even without additional borrowing.

This is why foreign borrowing must be assessed in relation to the country’s foreign exchange-earning capacity rather than simply its ability to obtain loans from international lenders.

Are Borrowed Funds Being Used Efficiently?
Another important question is whether Bangladesh has received adequate economic returns from its foreign-financed projects.

Over the years, the country has undertaken numerous large infrastructure projects with foreign financial assistance. Roads, bridges, power plants, ports and railway networks have contributed to economic development. However, the economic benefits of every project cannot be assumed merely because it has been completed.

Questions must be raised about project selection, feasibility studies, implementation costs, delays, procurement procedures and actual economic returns. Projects that take years longer than scheduled or cost substantially more than originally estimated increase the financial burden on the public.

If a foreign-funded project fails to generate sufficient revenue or wider economic benefits to justify its cost, the government must find alternative sources of money to service the loan. Ultimately, taxpayers bear the burden.

There should therefore be a comprehensive review of major foreign-funded projects. Their original costs, revised costs, implementation periods and economic returns should be made publicly available.

Transparency and accountability must become essential elements of public investment management.
Strengthening Domestic Resources
Bangladesh cannot solve its debt problem simply by refusing foreign loans.

Such a decision could disrupt essential development activities and aggravate existing economic difficulties. A more practical approach is to reduce unnecessary dependence on external borrowing by strengthening domestic resource mobilisation.

One of the major weaknesses of the Bangladesh economy is its narrow tax base and inadequate revenue collection. Tax evasion, unnecessary exemptions and administrative weaknesses continue to limit government revenue.

The government should modernise tax administration, broaden the tax base and ensure that individuals and businesses with substantial incomes pay their fair share.

At the same time, public expenditure must be prioritised. Wasteful spending, unnecessary administrative costs and poorly conceived development projects should be discouraged. Public money must be allocated to sectors that generate employment, improve productivity and expand the country’s economic capacity.

Bangladesh also needs to diversify its export basket. Excessive dependence on the ready-made garment sector leaves the economy vulnerable to external shocks. Pharmaceuticals, agro-processing, light engineering, information technology and other potential export industries deserve greater policy support.

Increased foreign direct investment, improved investment conditions and greater competitiveness would also help strengthen foreign exchange earnings and repayment capacity.

A Prudent Borrowing Policy Is Essential
The government needs to establish a clear and disciplined foreign borrowing policy. Every proposed loan should be evaluated against its economic viability, financial cost, repayment schedule and expected contribution to national development.

Concessional loans from multilateral institutions such as the World Bank and Asian Development Bank are generally preferable to expensive commercial borrowing because they often offer lower interest rates and longer repayment periods. Nevertheless, even concessional loans must be used responsibly.

The government should publish comprehensive annual debt management reports showing outstanding liabilities, repayment schedules, interest obligations and the expected returns from foreign-funded projects. Parliament and relevant public institutions should exercise stronger oversight over new borrowing.

Most importantly, the government must distinguish between borrowing for investment and borrowing for consumption. Loans that expand productive capacity can strengthen the economy, whereas loans that finance recurring expenditure without generating additional income can create persistent financial difficulties.

Responsibility Towards Future Generations
The issue of foreign debt is not merely a financial matter; it is also a question of economic sovereignty and intergenerational responsibility.

Excessive dependence on external creditors may gradually reduce a country’s freedom in determining its economic priorities. Debt-related conditions, repayment pressures and foreign exchange shortages can constrain national policy choices.

Bangladesh has achieved considerable progress in poverty reduction, infrastructure development, agricultural production and social indicators. These achievements should not be undermined by imprudent borrowing and inefficient public expenditure.

The government has an important responsibility to examine the country’s debt position realistically and take preventive measures. It must resist the temptation to finance every development ambition through foreign loans. Economic growth should increasingly be supported by domestic savings, private investment, industrial productivity, export diversification and effective revenue mobilisation.

Foreign loans should remain an instrument of development, not an instrument of economic survival. Borrowing may be necessary during a crisis, but a country cannot borrow its way out of every crisis indefinitely.

The real test of economic management is not how much foreign assistance a government can secure, but how effectively it can utilise available resources to create wealth, employment and sustainable growth. Bangladesh must learn this lesson before the cost of borrowing becomes an unbearable burden on its economy and future generations.

(Writer is a Columnist & Advisory Editor of The New Nation)