Foreign debt servicing to exceed $10b in 3 years

Bangladesh is projected to spend $10.07 billion – more than Taka one lakh crore – for repaying foreign loans and interests in the next three fiscal years, causing the government’s debt service to rise by 64.35 per cent in FY25, compared to the ongoing FY.

The country will have to repay $7.13 billion principal and $ 2.95 billion interest between FY23 and FY25, according to the finance ministry estimation. It is projected to spend $2.78 billion on foreign loan repayments in the upcoming FY23 – $1.96 billion principal and $0.82 billion interest.

These figures show a 13.45 per cent rise compared to that of FY22 – which is estimated to hit $2.45 billion. In the current FY, the government is projected to repay $1.72 billion principal and $0.73 interest.

Economists say the country is set to face the worst time after three years in terms of servicing foreign debt. The situation might be even beyond estimation if the forex volatility existed for a longer time.

Due to the recent decline in Taka’s value against USD, Bangladesh’s debt servicing – when calculated in local currency – could be much higher than previously estimated.

The finance ministry further estimates that the country will spend $3.28 billion and $4.02 billion on repaying foreign loans in FY24 and FY25 respectively. In FY24, Bangladesh will repay principal amounting to $2.30 billion, which would hit $2.87 billion in FY25.

Meanwhile, the country will spend $0.98 billion in interest payments in FY24, which would reach $1.15 billion in FY25.

The government has taken out a large amount of foreign loans to implement mega projects. Under different bilateral, multilateral, donor agencies, suppliers’ credit and line of credit, foreign loans have piled up, causing the repayment expenditure to go up as well.

Back in FY15, Bangladesh’s annual net foreign debt was Tk 4,910 crore. Meanwhile, in the budget for ongoing FY, the country has an estimated annual net foreign debt of Tk 97,738 crore. The figure was Tk 68,414 crore in the budget for FY21.

Foreign loans are mostly used to finance mega projects, and many such projects are being implemented across the country. This is causing the size of Bangladesh’s Annual Development Programme (ADP) to rise every year as well, finance ministry sources told The Business Post.

Insiders further reveal that Bangladesh spends around 2.5 per cent of its GDP annually for repaying interests of domestic and foreign loans. The country’s expenditure in this sector has been rising by around Tk 6,500 crore annually, but it is projected go higher in the coming years.

There are concerns that the government’s expenditure in this particular sector will skyrocket in FY26.

According to the finance ministry’s latest Medium Term Macroeconomic Policy Statement, from FY16 to FY20, interest payments against financing from external sources occupied 0.9 per cent of the total government expenditure, while the average interest rate was only 1.1 per cent.

With the increase in foreign loans, the country’s expenditure for paying interests against external financing has increased too. Sources however said the country’s interest payments against financing from internal sources are much higher than the debt service of foreign loans.

In the budget for ongoing FY22, Bangladesh projected to spend Tk 68,589 crore for paying interests against both internal and external loans. The government will spend Tk 62,000 crore for paying interests against internal loans, and Tk 6,589 crore for interests on external loans.

Bangladesh is projected to spend Tk 77,055 crore and Tk 88,160 crore as interest payments in FY23 and FY24 respectively. Of these figures, Tk 69,800 crore and Tk 71,430 crore will be spent on paying interest for internal loans in FY23 and FY24 respectively.  

Too much foreign loans put pressure on a country’s forex reserves and currency exchange rate. Bangladesh is currently witnessing an increasing demand for investments and foreign currency.

There are major concerns that the repayment of a large volume of foreign loans – both principal and interest – could turn the ongoing demand for foreign currency into a severe crisis.

It should be noted that a huge volume of foreign loans and the pressure of repaying the sum with interest, was the catalyst behind the unprecedented crisis in Sri Lanka.

Foreign loans shouldering mega project costs

According to sources, the Rooppur Nuclear Power Plant is the largest development project of Bangladesh till date, in terms of expenditure. The project is being implemented – with financial and technical assistance from Russia – at a cost of Tk 1,13,092 crore.

Of the figure, Russia is providing Tk 91,040 crore in loans.

Besides, Bangladesh is also building a coal-fired power plant in Matarbari at a cost of Tk 51,855 crore, with Tk 43,921 crore in assistance from the Japan International Cooperation Agency (JICA).

Bangladesh is building a new rail track – from Dhaka through the Padma Bridge to Jashore – at a cost of Tk 39,246 crore. China is providing Tk 21,036 as loan assistance in the project.

The country is also building six metrorail lines in Dhaka. Construction of the MRT Line 6 –stretching from Uttara to Motijheel – will cost Tk 21,985 crore. JICA is providing Tk 16,595 as loan for implementing this project.

Construction of the new dual-gauge rail track from Chattogram’s Dohazari to Cox’s Bazar will cost Tk 18,034 crore. The Asian Development Bank is providing Tk 13,115 crore as loan for implementing the project.

Bangladesh is building a separate railway bridge in parallel with the Bangabandhu Bridge on River Jamuna River at cost of Tk 16,780 crore, and JICA is providing Tk 12,149 crore as assistance in the project.

The country is upgrading the 190km highway from Tangail’s Elenga to Rangpur to four lanes at a cost of Tk 16,662 crore. Of the figure, Tk 11,625 crore is in loans.

Many of the mega project implementations across the country are moving forward at a snail’s pace, this in turn is deepening Bangladesh’s reliance on foreign loans, causing project implementation costs to rise steadily, and further worsening public suffering. 

Dr Debapriya Bhattacharya, distinguished fellow at the Centre for Policy Dialogue (CPD), said, “Three years ago, I had predicted that this would be the worst period for loan repayments, and current government estimates confirm my predictions.

“The consistency in imports and remittances will define the debt situation in the coming days. If the value of the taka does not remain stable, the situation would further degrade. The most effective way to cope with the pressure of foreign debt and interest payments is to increase government revenue.”