Bangladesh Repays More Than Twice Fresh Foreign Aid in Two Months

Bangladesh repaid more than twice the amount of foreign financing it received in the first two months of FY2026-27, underscoring mounting pressure from external debt servicing as fresh aid disbursements plunged.

The country received just US$294.56 million in foreign loans and grants during July-August, while the government paid $698.92 million in principal and interest on previously contracted foreign loans, according to the latest data from the Economic Relations Division (ERD).

Of the total debt repayment, $516.04 million went towards principal, while another $182.88 million was paid in interest.

The sharp mismatch means Bangladesh repaid about $2.37 for every $1 received in fresh foreign assistance during the period, turning external financing into a significant net outflow at the start of the new fiscal year.

The pressure is being fuelled by the repayment phase of several large foreign-funded projects, while sluggish project implementation has simultaneously held back the disbursement of new assistance.

ERD data show that foreign assistance disbursement collapsed by more than 60 per cent year-on-year, from $750 million in July-August FY2025-26 to $294.56 million in the same period of FY2026-27.

Foreign-aid commitments, however, remained almost unchanged, suggesting that the immediate problem is not a complete drying-up of pledged financing but the slow conversion of commitments into actual project disbursements.

Bangladesh secured foreign-aid commitments worth $240.39 million during July-August FY2026-27, compared with $243.81 million during the corresponding period a year earlier.

The latest figures follow a broader deterioration in the external debt-service burden. Bangladesh received $8.07 billion in foreign assistance in FY2025-26, down from $8.57 billion a year earlier, while external debt servicing rose to $4.49 billion from $4.09 billion over the same period.

Economists have warned that the changing pattern of external financing demands greater scrutiny of new borrowing, particularly as an increasing number of earlier loans are moving beyond their grace periods.

Dr Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said Bangladesh should be extremely cautious in selecting development projects in view of its repayment capacity.

He stressed that the economic and financial returns of proposed projects should be assessed carefully before new foreign borrowing is undertaken.

Future borrowing, he said, should be directed towards projects capable of generating measurable economic returns, raising productivity, earning foreign exchange or reducing foreign-exchange expenditure.

Dr Mustafizur Rahman, Distinguished Fellow of the Centre for Policy Dialogue (CPD), has also pointed to the growing external debt-servicing burden, saying many large projects have now moved beyond their grace periods and are consequently generating both principal and interest obligations.

He cautioned that any further depreciation of the taka could increase the domestic-currency cost of servicing foreign debt.

The rising repayment burden comes at a critical juncture for Bangladesh, as external debt-service obligations are expected to remain elevated in the coming years. A sustained increase in repayments, combined with slower aid disbursements, could put additional pressure on the country’s foreign-exchange resources.

Economists have therefore stressed the need to strengthen domestic revenue mobilisation, improve public-expenditure efficiency and prioritise concessional financing to contain the cost of external borrowing.