In the last nine months of the current fiscal year, repayments on interest and principal for foreign debt have surged by 67% in FY24 compared to the same period last fiscal year, marking a 48% increase in dollar terms. The appreciation of the dollar has intensified pressure on foreign debt repayments, compounded by currency depreciation, which necessitates more money for the same interest payments. To mitigate this, the government is striving to enhance the supply of dollars for additional spending. Efforts included seeking budget support from development partners and securing project loans, with an anticipated $500 million from the World Bank by next June.

The upcoming fiscal year FY25, will witness a significant increase in interest payments, surpassing Tk 1 lakh crore for the first time, owing to extensive borrowing to compensate for high expenditures against dwindling revenue. The FY25 budget allocates Tk 1.13 crore for interest payments, nearly double the Tk 55,664 crore paid in FY20. Interest payments for local borrowing are anticipated to rise by 12 percent to Tk 93,000 crore, while those for foreign borrowing are expected to surge by approximately 65 percent to Tk 20,500 crore. This mounting pressure on interest payments, consuming 16 percent of the new budget compared to 12.4 percent in FY24, poses challenges for vital sectors like health and education. Factors contributing to this predicament include low revenue, currency depreciation against the US dollar, and a shortage of dollars necessitating further devaluation.

The private sector’s short-term foreign debt has seen a steady decline over the past three months leading up to March this year, totaling $11.04 billion in March, down from $11.07 billion in February and $11.25 billion in January, as reported by Bangladesh Bank. This downward trend has persisted since December 2022, attributed to higher interest rates on foreign loans compared to domestic ones. Previously at 1 percent, interest rates have surged to 8-9%, dissuading borrowers from seeking overseas loans. In 2022, the sector’s debt peaked at $16.41 billion, gradually reducing to $11.79 billion in 2023. Meanwhile, Bangladesh witnessed interest rates of 7-8% until June last year, which then rose to 10-11% due to liquidity constraints. Monthly average loans from abroad declined from $3,104 million in 2022 to $1,800 million in 2024, while repayments decreased from $3,061 million to $2,594 million during the same period, according to BB data.