Soaring aid repayments create fiscal pressure

Bangladesh is facing a fiscal squeeze as foreign loans decline

FHM HUMAYAN KABIR | Published: January 29, 2026 00:09:41

Bangladesh is facing a fiscal squeeze as foreign aid receipts declined during the first half (H1) of the current fiscal year, while the burden of repaying international debts reached new heights.
The country now faces a new challenge marked by a significant drop in new funding commitments and escalating debt servicing bills, according to provisional data from the Economic Relations Division (ERD).
As inflow slows, the cost of servicing the existing debt is rising rapidly.
Debt servicing payments jumped by 26.40 per cent to $1.98 billion in the first half of FY26, the ERD data shows.
Due to currency depreciation and rising interest rates, the cost in domestic currency skyrocketed by 37.32 per cent, reaching Tk 236.75 billion compared to Tk 172.41 billion in the previous fiscal year.
Rising global interest rates and continued pressure on the exchange rate have been cited as the primary reasons for the Tk 64.35 billion increase in repayment costs.
According to the ERD, total foreign aid disbursement during the July-December period of FY26 dropped to $3.53 billion, a 13.08 per cent decline from the $4.06 billion received during the same period in the previous fiscal year.
The decline was primarily driven by a sharp reduction in loan disbursements, which fell by nearly 16 per cent to $3.26 billion.
While grant disbursements saw a 48.54 per cent increase to $270.64 million, this was not enough to offset the substantial shortfall in loan-based funding.
The outlook for future funding appears even more constrained, and fresh aid commitments from development partners plummeted by 67.11 per cent in the first half of this fiscal year.
New agreements involving $2.3 billion were signed, down from $6.99 billion in the first half of the previous fiscal year, the ERD data shows.
Loan commitments have seen the most drastic reduction, falling by 69.47 per cent.
Grant commitments also decreased by 29.30 per cent.
Analysts note that while commitments were "almost stagnant" for the first five months of the fiscal year, they began to accelerate in December following new agreements with the World Bank, the Asian Development Bank (ADB), and the Asian Infrastructure Investment Bank (AIIB).
Despite the overall decline, some partners remained major contributors to the country's development budget.
The ADB ranked first in disbursements, providing $1.05 billion, while the World Bank followed with $801 million in disbursements and led in new commitments with deals involving $914.50 million.
Russia ranked third in disbursement with $532 million, the ERD data shows.
The widening gap between aid receipts and debt obligations reflects the growing "fiscal pressure" cited in recent government reports.
With unused foreign funds still totalling over $43 billion due to slow project implementation, the government faces increasing urgency to improve its "absorption efficiency" to mitigate the impacts of rising repayment costs and shrinking new aid.