Economy at Risk: Foreign Debt Surges Despite Lack of Focus on Development

Despite lower spending on development projects, foreign debt in Bangladesh is increasing rapidly. To meet the budget deficit and protect foreign exchange reserves, the government is relying on quickly disbursable budget support loans instead of project loans. The depreciation of the taka has further compounded the situation. As a result, the country’s foreign debt has nearly doubled in just three years.

According to the latest report of the Ministry of Finance, Bangladesh’s total foreign debt stood at approximately Tk 9.51 lakh crore at the end of September 2025, which is 92 percent higher than in June 2022. In other words, the amount of foreign debt has almost doubled within three years.

From fiscal year 2021–22 to 2024–25, Bangladesh received USD 9.82 billion in budget support loans. Of this amount, USD 3.44 billion was disbursed in fiscal year 2024–25 alone, which is 69 percent higher than the previous year. In contrast, disbursement of project loans declined by 29 percent during the same period.

The depreciation of the taka against the US dollar has further increased the debt burden. A few years ago, the exchange rate was around Tk 85 per dollar, whereas it has now risen to nearly Tk 122 per dollar. This has significantly increased the value of foreign debt when calculated in local currency.

In the first quarter of the current fiscal year, the government’s total debt stood at Tk 21.49 lakh crore. As a result, the debt-to-GDP ratio increased to 38.61 percent. Of the total debt, domestic borrowing amounted to Tk 11.97 lakh crore, with the remainder being foreign debt.

Along with rising debt, interest payment obligations have also increased. In the first three months of the current fiscal year, the government spent Tk 31,629 crore on interest payments, which is 27 percent higher than the same period of the previous year. Interest payments on foreign debt alone rose by 80 percent. Currently, one-third of the government’s operating expenditure is being spent on interest payments.

According to data from the Economic Relations Division, Bangladesh’s outstanding external debt reached USD 74.34 billion at the end of fiscal year 2024–25, which is nearly 8 percent higher than the previous year. Over the past five years, external debt has increased by around 46 percent.

Economists have warned that while budget support loans may bring short-term stability, they are increasing debt pressure in the long term. They argue that boosting revenue collection, avoiding high-interest loans, and limiting borrowing to fast-yielding projects could be possible solutions. Otherwise, interest payments may become the government’s largest expenditure item, further squeezing development spending.