Big loans may become bigger problems for Bangladesh: White Paper

Bangladesh's external debt repayments are expected to rise sharply in the coming years, exerting pressure on the country's economy, according to the final draft of the White Paper on the State of Bangladesh Economy.

The document, submitted to the chief adviser yesterday, warned that the grace periods for several large loans have already ended, with more others approaching their end soon. In addition, many new loans have shorter repayment periods, adding to the strain.

Most major infrastructure projects funded by external loans, such as the Rooppur Nuclear Power Plant, Padma Bridge Rail Link, Karnaphuli Tunnel, and Dhaka Mass Transit projects generate revenue in local currency. However, exchange rate fluctuations have made repayment in foreign currency more expensive, intensifying financial challenges, the paper explained.

Data shows repayments for a total of 213 loans as of June 2023 are due to increase significantly, and annual payments could triple by 2028. While these estimates depend on factors like exchange rates or potential loan restructuring, the trend of rising debt servicing costs is clear, according to the White Paper.

Debt payments, or amortisation, have already grown rapidly—from $1.74 billion in FY23 to $2.47 billion in FY24, and a projected $2.6 billion in FY25. By FY27, this figure could reach $3.2 billion.

The paper says this growing burden could severely strain Bangladesh's economy. The rising debt servicing obligations reduce the availability of funds for essential public services and development projects. Foreign currency reserves may also come under pressure, especially if export revenues and remittances fail to grow.

The growing debt stress could also limit the government's ability to respond to economic challenges, slow down development, and weaken investor confidence in the country. To address the issue, careful management of loans, revenue generation, and foreign currency reserves are essential.