Payment for foreign loans surges 44% in Jul-Apr

Bangladesh's foreign debt servicing surged by 44 percent to around $3 billion mark for the first time because of the interest payments, which are spiralling thanks to rising borrowing from high-interest sources and increasing utilisation of foreign loans.

In the July-April period of 2023-24, the government paid $2.81 billion as principal amount and its interest, which was $1.95 billion in the same period of the previous year, according to the Economic Relations Division (ERD) data released today.

In the first 10 months to April, around $1.15 billion was paid in interest this year, up from the previous year's $569 million.

The government's principal amount payment also rose 20 percent year-on-year to $1.66 billion in the period.

In the local currency, the government had to pay Tk 30,923 crore as principal and interest payment in the July to April period, which was Tk 19,248 crore in the same period previous fiscal.

Of the Tk 30,923 crore, around Tk 12,626 crore was paid as interest and the rest as principal amount, the data showed.

In the July-April period, the government's foreign aid utilisation also surged 6 percent year-on-year to $6.28 billion.

Of the foreign aid, Japan gave the highest amount of $1.66 billion, followed by $1.5 billion from the Asian Development Bank (ADB), World Bank's $1.05 billion, Russia's $857 million, China's $361 million and India's $242 million.

Meanwhile, foreign aid commitment also increased by 36 percent year-on-year to $7.6 billion where the highest promise of $2.69 billion aid came from the ADB followed by Japan's $2.04 billion and the World Bank's $1.42 billion.

According to an ERD report, the country now has to borrow at the costlier market-based rates to cover the development spending.

The interest rate risk is high when the debt portfolio is dominated by market-based rates because the volume of the payment is based on the vagaries of the global economy.

The cost of foreign loans has been on the rise as the interest rates have shot up globally. The interest rates for market-based loans have also increased significantly, an ERD official said.

In the next few years, debt servicing will be a major issue, and Bangladesh should be careful in managing the debt repayment and try its best to earn more through export and remittance, according analysts.

Besides, the government needs to demonstrate zero tolerance on capital flight, which often takes place through hundi.