Bangladesh is grappling with a sharp decline in foreign loan disbursement, driven by sluggish development project execution and a tightening fiscal policy.
The government is now repaying more than it borrows, deepening concerns over its financial strategy amid a challenging economic landscape.
According to the Economic Relations Division (ERD), foreign funding for development projects shrank by over 17% between July and February of the 2024-25 fiscal year, reflecting a noticeable slowdown in external financing.
In parallel, repayments on existing loans surged by nearly 30%, straining the country’s already limited fiscal space.
In an effort to contain the budget deficit, the government has been reducing the number of approved projects, tightening disbursements, and scrutinising budget allocations more rigorously.
While these measures aim to curb unnecessary expenditure, they have also inadvertently led to a reduction in overall project costs, contributing to the decline in foreign financing.
The latest ERD report reveals that disbursements for project loans and grants over the past eight months amounted to $4.13 billion, marking a significant $4.99 billion—or 17.27%—decline compared to the same period in the previous fiscal year.
Meanwhile, repayments on outstanding debt have climbed to $2.63 billion, a substantial 30% increase year-on-year.
Of this, $1.69 billion was used for principal repayments, while $944 million went toward interest payments.
In contrast, during the same period last year, external debt repayments stood at $2.03 billion—underscoring the mounting pressure on Bangladesh’s fiscal management.
Despite continued interest from development partners, new loan agreements have remained strikingly low.
Between July and February, the total value of fresh loan commitments stood at just $2.35 billion, while a substantial $9.16 billion remains in the pipeline.
This marks a stark contrast with the previous fiscal year when Bangladesh secured $7.2 billion in new loan commitments during the same period.
The decline of $4.84 billion—or 67.32%—signals a significant slowdown in external financing, raising concerns about the sustainability of the government’s development agenda.
Amidst the contraction in foreign loan disbursement, international donors have increased allocations for food aid.
Over the past eight months, Bangladesh received $25 million in food assistance—an increase of 138% compared with the $10 million allocated during the same period last year.
This shift underscores a change in donor priorities, with emergency support taking precedence over long-term development financing, a trend that could further constrain the government’s ability to execute its economic plans.
With Bangladesh repaying more than it borrows, the nation faces a complex balancing act—managing its fiscal responsibilities while ensuring sufficient investment in critical development projects.
If foreign loan disbursement continues to decline, the government may need to reassess its strategy, seeking alternative financing models and accelerating project execution to regain investor confidence.
For now, the fiscal belt-tightening continues, but whether it leads to financial stability or economic stagnation remains to be seen.
