Saturday, July 13, 2024

$3 billion in foreign debt repaid within 11 months

Bangladesh Repays Record $3.068 Billion to Development Partners in FY26

As Bangladesh prepares to graduate from least developed country status in 2026, the country is facing new challenges in managing its foreign debt repayments. According to data from the Economic Relations Department (ERD), Bangladesh has repaid a record $3.068 billion to its development partners during the first 11 months of the current fiscal year.

This repayment amount is the highest ever for the country, reflecting the increasing pressure of foreign debt servicing. The repayment includes both principal and interest payments, with the total annual foreign debt servicing exceeding $3 billion for the first time.

The increase in debt repayments is driven by the initiation of principal repayments for several mega projects and the impact of high global interest rates. As the grace period ends for loans on projects like the installation of Single Point Mooring and the Modernization of Telecommunication Network for Digital Connectivity, the principal repayment pressure has increased.

ERD officials have noted that the principal repayment amount will continue to increase gradually in the current and next financial year. The government has already paid $1.8 billion in principal up to May of the current fiscal year, compared to $1.58 billion in the same period of the previous fiscal year.

One of the factors contributing to the rising debt repayment burden is the increase in interest payments for market-based loans. The Secured Overnight Financing Rate (SOFR) has risen significantly due to the Ukraine-Russia war, with the current rate exceeding 5%. This has led to higher market-based loan costs for Bangladesh, resulting in increased interest payments.

Interest payments have grown by 42% in the 11 months to May of this fiscal year, with the government making interest payments of $1.25 billion compared to $882.86 million in the equivalent period of the last fiscal year.

Towfiqul Islam Khan, a senior research fellow at the Centre for Policy Dialogue, has expressed concerns about the increasing debt repayments. He noted that debt repayments have been rising by $500-600 million annually over the last three years and are expected to continue increasing.

As the government faces challenges in managing its debt repayments, Khan emphasized the need for independent assessment and suggested the involvement of relevant parliamentary committees in the process. The government’s reliance on loans to cover the principal repayment of external loans is putting pressure on the country’s debt status.

Despite these challenges, commitments by development partners have increased by 33% during the July-May period of the current financial year. The government has received commitments of $7.92 billion, with the Asian Development Bank (ADB) pledging the most at $2.69 billion.

Japan and the World Bank have also made significant pledges, reflecting continued support from development partners. However, as debt repayments continue to rise, Bangladesh will need to carefully manage its debt obligations to ensure sustainable economic growth and development.

It is clear that Bangladesh’s economic landscape is evolving, and effective debt management will be crucial in navigating the challenges ahead as the country prepares for its transition to a new phase of development.

Disclaimer: The information provided in this article is for informational purposes only and should not be considered as financial advice. The content is based on general research and may not be accurate, reliable, or up-to-date. Before making any financial decisions, it is recommended to consult with a professional financial advisor or conduct thorough research to verify the accuracy of the information presented. The author and publisher disclaim any liability for any financial losses or damages incurred as a result of relying on the information provided in this article. Readers are encouraged to independently verify the facts and information before making any financial decisions.

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