The news is worrying.
Over the next five years, servicing foreign debt will create a significant economic burden on Bangladesh. Estimates show that during the five fiscal years from 2026 to 2030, Bangladesh will need to spend $26 billion to repay external debt.
Needless to say, even in historical perspective, this debt burden is enormous.
In the 54 years since independence, Bangladesh has spent a total of $40 billion on external debt repayment; in contrast, in just the next five years, it will have to spend nearly two-thirds of that amount.
As of last June, Bangladesh’s total external debt stood at $77 billion, which is 19% of national income, and this ratio has been rising over time.
Currently, Bangladesh’s debt servicing to government revenue ratio is 16.5%. Although this is slightly below the International Monetary Fund’s risk threshold of 18%, the overall picture is far from reassuring.
But that is not the end of the story.
During the 10 fiscal years from 2026 to 2035, Bangladesh’s external debt repayments will total $51 billion -- double the amount of the next five years. By 2030, annual repayments will peak at around $5.5 billion.
From 2021 to 2025, Bangladesh earned about $2 billion from remittances per month. Thus, the peak annual repayment could be covered by roughly three months of remittance income. If current trends continue, it will take Bangladesh 37 years -- until 2063 -- to fully free itself from the current debt burden.
How did this massive debt burden arise?
Some causes are global. Events such as the Ukraine war, the Covid-19 pandemic, and the Israel-Palestine conflict have negatively affected exports, foreign direct investment, and remittance inflows of Bangladesh.
This has slowed domestic economic growth and reduced government revenue, making debt repayment more difficult.
Recent conflicts in the Middle East, international uncertainties and vulnerabilities and global economic slowdown have further threatened Bangladesh's exports, imports -- especially fuel imports -- FDI, and remittances, weakening Bangladesh’s repayment capacity.
Domestic factors are also significant.
First, historically, the country's large-scale infrastructure projects, largely financed through foreign loans, have contributed heavily to the debt burden.
These include the $11 billion Ruppur Nuclear Power Project, the Karnaphuli Tunnel, the Padma Rail Link, and the third terminal of the Shahjalal International Airport.
Delays in the implementation of these projects have increased project costs and, consequently, debt repayment obligations of Bangladesh.
For instance, by 2028, the Ruppur project alone will require annual debt repayments of $500 million.
Delays have also postponed the expected benefits and revenues from these projects -- for example, the Japan-funded $2 billion third terminal at the Shahjalal Airport is yet to be operational.
Second, Bangladesh has failed to adequately expand its tax base. Tax revenue, especially direct taxes, has not reached desired levels.
The tax-to-GDP ratio of Bangladesh is only about 7%, and the system relies heavily on indirect taxes. With sluggish economic growth, even indirect tax revenues are constrained. Limited government revenue forces reliance on borrowing, including external loans.
Third, because the economy depends heavily on import duties, recent global and geopolitical developments have made imports more expensive.
This has put pressure on foreign exchange reserves. At the same time, declining exports and remittances are reducing foreign currency inflows, making debt repayment increasingly fragile for Bangladesh.
Fourth, many bilateral and multilateral lenders have changed their interest structures, shortened repayment periods, and reduced grace periods. Altogether, these changes have intensified the pressure on Bangladesh’s debt servicing situation.
How can Bangladesh overcome this situation?
Clearly, in the context of the global energy crisis, this debt burden poses an additional risk to the economy.
When new repayment cycles begin in the coming years, the situation may become even more complex. Several measures can be taken.
First, increasing tax revenue -- especially direct taxes -- is essential, not just for debt servicing but for sound economic management and sustainable stability.
The tax-to-GDP ratio should at least match that of neighbouring countries. Weak tax collection will make debt repayment capacity increasingly risky.
Second, there is no alternative to diversifying exports of Bangladesh.
Imports must also be rationalized, distinguishing between essential and non-essential goods, luxury items and productive inputs.
In the current global context, such prioritization is crucial. Measures must also be taken to increase remittance inflows.
Third, project selection must be strict and objective in Bangladesh.
The culture of prestige mega-projects should be avoided. Financing sources should be as domestic as possible. Project timelines must be enforced, with no unjustified delays.
Loan-financed projects require rigorous scrutiny, especially in the energy sector, where investment is critical to solving many of Bangladesh’s existing problems.
Debt decisions must depend on repayment capacity, which in turn requires export growth and expanded fiscal space.
Fourth, to manage rising repayments alongside new borrowing, Bangladesh must strengthen capacity in four areas:
In the current situation, Bangladesh must remain cautious. It has never defaulted on foreign debt, unlike Sri Lanka. It must ensure that, despite global economic slowdown and geopolitical turbulence, it does not fall into default or require debt restructuring.
Such outcomes would damage Bangladesh’s reputation and credibility in the global economic system -- especially at a time when it is looking to transition from a least developed country to a developing nation.
Dr Selim Jahan is Former Director, Human Development Report Office and Poverty Division, United Nations Development Program, New York, USA.