Foreign debt servicing tops disbursal amid 91% drop in commitments

Bangladesh received $522.7 million in new loan commitments from development partners but repaid $1.05 billion in principal for existing loans during the first five months of the current fiscal year, according to the Economic Relations Division (ERD).

In addition to principal repayments, the country paid $655.1 million in interest, bringing the total repayment amount to $1.711 billion. This repayment significantly exceeded the $1.544 billion in foreign loans disbursed, highlighting a net outflow.

The updated data published by the ERD further reveals notable changes compared to the previous year. Between July and November, foreign loan commitments dropped by 91% and disbursements by 27%, while loan repayments rose by 28.44%.

ERD officials said since the interim government assumed power in August, foreign-financed projects are being implemented cautiously, with pipeline projects undergoing re-evaluation and loan processing prioritised based on project importance.

They added that this cautious approach has slowed the signing of new agreements with development partners.

Similarly, the pace of implementing foreign-financed projects has declined, with challenges such as contractors leaving projects like the Matarbari power project, the need to appoint new project directors, and delays caused by foreign contractors withdrawing.

Political instability has further stalled development activities, worsening these issues and reducing foreign funding for development projects.

Regarding the rise in loan repayments, ERD officials explained that many large project loans from the previous government have exited their grace periods, leading to higher principal repayments. In contrast, interest payments have risen due to market-based interest rates.

Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development, told The Business Standard that in the current unstable situation, it is normal for loan commitments to decrease.

"The interim government is cautious about taking loans, while development partners are also proceeding slowly with the loan process. This caution has similarly impacted disbursements as ministries and departments face obstacles in meeting the necessary conditions for foreign loan disbursement," he added.

The economist said during the previous government, numerous mega projects and significant budget support were taken to address economic crises, leading to the start of actual repayments. As a result, future loan repayments are expected to increase further.

"Even with declining commitments and disbursements, loans must be repaid. To manage this, revenue collection, export earnings, and remittances must be boosted; otherwise, the economy risks stagnation due to the burden of foreign debt," he added.

According to ERD data, Japan pledged $248 million in July-November, while the World Bank committed only $14.5 million, and the Asian Development Bank (ADB) made no commitments.

During this period, ADB disbursed $318 million, Japan $307 million, Russia $244.99 million, the World Bank $205.44 million, China $135 million, and India $42.79 million.