Bangladesh's foreign debt repayments top record $4bn in 11 months

Government plans to finance 64.13 percent of its budget deficit through external borrowing despite weaker aid inflows

Bangladesh's repayments on past foreign loans surged to a record high in the first 11 months of fiscal year 2025-26, even as fresh external funding for development projects weakened amid slow implementation.

Updated data released by the Economic Relations Division (ERD) on Tuesday showed that Bangladesh repaid $4.13 billion to development partners and foreign countries between July and May.

It surpassed the total for the entire previous fiscal year by $40 million.

In fiscal year 2024-25, Bangladesh spent $4.09 billion servicing external debt, the first time annual repayments exceeded $4 billion.

During the first 11 months of the previous fiscal year, debt servicing payments, including principal and interest, stood at $3.78 billion.

Government expenditure on this account has therefore risen by nearly 10 percent year-on-year.

By contrast, foreign loan and grant disbursements from development partners declined during the Jul-May period.

Development partner countries and international financing agencies disbursed $4.58 billion in loans and grants during the period, compared with $5.61 billion in the same period a year earlier -- a drop of more than 22.5 percent.

Despite these adverse indicators, the BNP government has proposed a budget heavily reliant on foreign borrowing for fiscal year 2026-27.

The government has unveiled a Tk 9.38 trillion budget, raising expenditure by 19 percent from the current fiscal year.

To finance the budget gap, it has set a net foreign borrowing target nearly double the amount received in the outgoing fiscal year.

The government aims to borrow Tk 1.56 trillion from external sources, equivalent to 2.28 percent of GDP.

That means 64.13 percent of the total budget deficit is expected to be financed through foreign loans.

Of the total, Tk 460 billion will be spent on principal and interest payments, leaving net foreign borrowing at Tk 1.10 trillion, 89.4 percent higher than the revised figure for the outgoing fiscal year.

The revised budget for fiscal year 2025-26 reduced the foreign borrowing target from Tk 1.35 trillion to Tk 950 billion, while net foreign borrowing stood at Tk 580 billion.

Development activity has remained subdued over the past 18 months amid economic instability following the fall of the Awami League government in Aug 2024, slowing foreign loan disbursements.

ERD data also showed foreign aid commitments fell to $4.22 billion during Jul-May from $5.48 billion a year earlier, a decline of more than 30 percent.