Our newspaper on Monday reported that the country is facing a burgeoning debt servicing crisis that demands urgent attention.
Recent data from the Economic Relations Division (ERD) reveals a staggering 27 per cent surge in foreign debt servicing during the first half of the financial year 2024-25.
The country repaid a total of $1.98 billion, with interest payments alone amounting to $747.56 million. This sharp increase in debt servicing is a troubling indicator of the financial strain on the nation’s public finances.
In stark contrast to the previous year, when total repayments stood at $1.567 billion, the current figures highlight a worrying trend.
The rise in local currency repayments to Tk 23,675 crore from Tk 17,240 crore further exacerbates the fiscal pressure. As the government allocates 14.5 per cent of its budget to interest payments, the sustainability of public finances is increasingly in jeopardy.
Compounding this issue is the dramatic decline in foreign loan commitments, which plummeted by 67.11 per cent year-on-year.
Despite securing $1.1 billion in budget support from the World Bank and the Asian Development Bank, total loan commitments fell to a mere $2.298 billion.
This decline in financial support from development partners raises serious concerns about the country’s ability to fund essential projects and maintain economic stability.
The new government’s cautious approach to reviewing proposed projects for foreign loans has led to a slowdown in new loan agreements. While prudence in financial management is essential, the current strategy risks stalling vital development initiatives.
Re-evaluating pipeline projects and prioritising loan processing based on importance may be necessary, but they should not come at the cost of economic growth and stability.
Looking ahead, the projections are alarming. Bangladesh is expected to pay over $4.5 billion in debt servicing in FY25, with figures approaching $5 billion in FY26.
The peak is anticipated in FY27 when debt servicing could reach a historic high of $5.3 billion. This trajectory is unsustainable and significantly threatens the nation’s economic health.
We urge the government to adopt a more proactive approach to managing its debt. This includes seeking new avenues for investment, enhancing revenue generation, and ensuring that foreign aid is effectively utilised.
Without decisive action, Bangladesh risks falling into a cycle of debt that could stifle its development ambitions and undermine its progress in recent years.
