Bangladesh’s foreign debt servicing costs soared by over 47% in the July-August period of the ongoing fiscal year 2024-25, reaching $589.22 million.

This significant increase is mainly attributed to the commencement of principal repayments for several large infrastructure projects and the impact of elevated global interest rates.

During the same period last year, debt servicing costs amounted to $400.50 million.

Simultaneously, foreign aid commitments to Bangladesh plummeted by 98%, falling to a mere $20.16 million in the first two months of this fiscal year, compared to $1.14 billion received during the corresponding period a year ago.

This steep decline can be likened to a stream drying up suddenly, leaving little support to help sustain the country’s financial needs.

Foreign loan disbursements also saw a 38% reduction, totalling $458.24 million in July-August FY25, compared to $739.07 million during the same period last year.

The government repaid $415.62 million in principal on various loans during this time, up from $254.11 million in the previous year. Meanwhile, interest payments on foreign loans increased to $173.60 million, compared to $146.39 million last year.

Towfiqul Islam Khan, senior research fellow at the Centre for Policy Dialogue (CPD), highlighted the mounting challenge of managing Bangladesh’s foreign debt.

He likened the situation to accumulating loans over a decade, where the returns on many investments have been lacklustre due to high costs and inefficiencies.

The growing strain on foreign reserves, combined with a depreciating currency, compounds the problem, he observed.

While Bangladesh’s foreign debt-to-GDP ratio remains relatively low, the primary concern, he noted, is managing the upcoming repayments for large infrastructure projects.

He emphasised that the interim government must take foreign debt seriously and implement strategic reforms for sustainable debt management. Addressing corruption and improving investment efficiency, he stressed, are critical to maximising the benefits of foreign loans.

The support from international development partners, such as the World Bank and IMF, represents a crucial opportunity to tackle this crisis, but only if these loans are managed effectively.

According to Economic Relations Division (ERD) officials, the sharp decline in foreign aid commitments stems from recent political upheaval, and the interim government’s decision to review foreign loan-funded projects that are either in the pipeline or under negotiation. As a result, no new loan agreements have been signed with development partners.

However, officials stated that loan agreements will be signed once the review is complete, and they expect to meet foreign aid commitment targets.

Following the formation of the new interim government, various multilateral and bilateral development partners, including the World Bank and Asian Development Bank (ADB), have provided preliminary assurances of loan assistance and budget support for various projects in Bangladesh. If these commitments are fulfilled, Bangladesh is expected to secure the highest amount of foreign aid in its history this fiscal year.

The interim government has launched a review of all foreign-funded projects—whether ongoing, proposed, or under negotiation—to identify priority projects, initiate their implementation, and discontinue those deemed unnecessary.

The ERD has already sent letters to government agencies implementing foreign-funded projects, requesting that they submit a priority list with details on project rationale, feasibility, and progress by the end of the month.

ERD will review these lists and forward them to the Planning Commission, which will prioritise the projects for approval. Once this process is complete, ERD will initiate the loan process.

On 18 September, after a meeting of the Executive Committee of the National Economic Council (ECNEC), Planning Adviser Prof Wahiduddin Mahmud informed reporters that all projects in the pipeline would be reviewed.

“We will quickly complete the review of foreign-funded projects. We need foreign funding, and there are billions of dollars’ worth of projects awaiting approval. However, not all foreign-funded projects are necessarily good ones,” he remarked.

In FY24, Bangladesh secured $9.88 billion in foreign aid commitments from development partners for project funding and budget support, marking an 8.92% increase from FY23.