$453m Out, $180m In: Bangladesh’s Foreign Debt Red Flag Flies High

Poor performance of development projects, cost overruns and poor returns from foreign-funded projects is putting high pressure on the country’s external economic frontier which slashed down foreign loans by 13.4pc to $180m in July.

Bangladesh received $180.18 million in foreign assistance in July, the first month of the current fiscal year 2026-27, marking a 13.4 percent decline from $208.04 million disbursed in the corresponding month of the previous fiscal year, according to data released by the Economic Relations Division (ERD).

Of the total receipts, Bangladesh received $179.67 million in loans and $0.51 million in grants in July 2026 while it paid $453.23 million in principal and interest against loans. 

However, grant disbursement increased by $0.20 million, or nearly 64.5 percent, during the month. No foreign assistance was disbursed under the food assistance category in either July 2026 or July 2025.

The concern is significant because foreign debt has increased substantially over the past decade, while repayment obligations are now entering a higher phase. According to the Finance Division, Bangladesh’s external debt-servicing costs could rise to around $7.6 billion by FY2028-29, almost double the level recorded in FY2024-25.

Experts say the latest July figures should not by themselves be interpreted as evidence of an immediate external debt crisis. However, the continuing trend of rising repayments and weaker fresh financing warrants closer attention.

Dr Ashikur Rahman, principal economist at the Policy Research Institute (PRI) of Bangladesh, previously described the situation where debt servicing exceeds fresh foreign loan inflows as a “warning sign.” 

He said the development is particularly concerning when foreign-funded projects are being implemented slowly and new financing is not entering the economy at the expected pace. 

The report also shows that foreign aid commitments during July 2026 stood at $14.05 million, entirely in the form of grants. No loan commitment was recorded during the month. As a result, Bangladesh repaid $273.05 million more than it received in fresh foreign loans during the month.

The development partners’ loan disbursement also declined by 13.39 percent year-on-year at a time when  debt servicing increased by nearly 4 percent in July this year.

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, has also expressed similar concern. He warned that Bangladesh is approaching a situation where a significant portion of fresh borrowing could effectively be absorbed by debt servicing rather than adding substantially to foreign exchange availability.

“Future foreign borrowing should be directed towards projects capable of generating measurable economic benefits, increasing productivity, earning foreign exchange or reducing foreign exchange expenditure”, he told the Daily Observer. 

The latest annual figures also underline the emerging pressure. Bangladesh repaid a record $4.49 billion in principal and interest on foreign loans in FY2025-26, up nearly 10 percent from $4.09 billion a year earlier. At the same time, foreign loan commitments fell 37 percent to $5.24 billion, the lowest in 14 years. 

Of the $4.49 billion repaid last fiscal year, $2.95 billion was principal while interest payments stood at around $1.54 billion. Meanwhile, total foreign loan disbursement declined to $8.07 billion from $8.57 billion a year earlier. 

Prof Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM), has warned that declining foreign loan commitments and disbursements alongside rising repayments indicate a tightening external financing environment. 

“Bangladesh is beginning to shoulder repayment obligations for large infrastructure projects before fully realising the productivity gains those investments were expected to generate”, he said.

Raihan has also stressed the need to strengthen export competitiveness, attract foreign investment, sustain remittance growth and ensure that future borrowing generates timely and productive returns. 

Foreign loans remain an important source of financing for Bangladesh’s infrastructure and development projects. But as concessional loans become less available and repayment obligations increase, the government will need to be more selective in taking new loans.