Despite mounting pressure to repay large amounts of foreign loans taken during the previous Awami League government, the incumbent government is regularly and successfully paying back both principal and interest on its external debts.

At the same time, the government has adopted a cautious approach towards taking new loans. Emphasis is being placed on obtaining foreign loans only after considering the necessity of projects, their economic feasibility, investment benefits and the country’s future debt-servicing capacity.

According to the latest data from the Economic Relations Division (ERD), the government repaid US$453.23 million in principal and interest on foreign loans in July 2026. The amount was US$446.68 million in the same month of 2025.

On the other hand, foreign loan disbursement stood at US$180.1 million in July, compared with US$208.04 million in the same period of the previous year. The commitment for new foreign loans during the month stood at US$14.05 million.

The figures show that alongside regularly servicing its legacy debt, the government has also maintained restraint in taking new loans. 

Priority is being given to using borrowed funds for projects capable of generating investment and employment, particularly by creating momentum in productive and manufacturing sectors.

The pressure of foreign debt repayment has increased significantly in recent years. 

According to ERD data, the amount of principal and interest repaid against foreign loans in fiscal year 2025-26 increased by around 10 percent from the previous fiscal year to US$4.49 billion. The amount was US$4.09 billion in FY2024-25.

The main reason is that loans taken for large infrastructure and mega projects during the previous Awami League government have now entered the repayment phase. 

As the grace periods for many of these project loans taken over the past one and a half decades have expired, repayment of principal and interest has begun. 

As a result, the burden of debt servicing has increased during the tenure of the current government.

Talking to BSS, Prime Minister’s Adviser on Finance and Planning Professor Dr Rashed Al Mahmud Titumir said that the Awami League government borrowed extensively between 2009 and 2024 in the name of infrastructure and mega projects. 

At the time of taking such loans, the government did not adequately consider the ‘value for money’ from the projects and the interest rates, he said.

He said a huge burden of loans and subsidies was also created in the power sector due to various factors, including capacity charges. 

“The current government now has to deal with the additional pressure of repaying those loans. However, the government is servicing these liabilities,” he said. 

Saying that the Awami League government had left a debt burden on future generations by taking loans indiscriminately, he said the present government has adopted an extremely cautious approach to borrowing from both domestic and foreign sources.

“We’re prioritising the use of loans to increase momentum in investment, particularly in the manufacturing sector. When taking a loan, we are considering what return it will generate and how much employment it will create before making a decision,” he said.

According to ERD data, repayment of principal and interest on medium-and long-term foreign loans stood at US$2.67 billion in FY2022-23. It increased to US$3.37 billion in FY2023-24 and further rose to US$4.09 billion in FY2024-25.

During the previous Awami League government, substantial foreign financing was obtained for implementing large infrastructure and mega projects.

 Foreign assistance was also used significantly in various development programmes.

According to historical ERD data, foreign aid commitments stood at US$10.74 billion in FY2023-24, while disbursement amounted to US$10.28 billion.

Dr Zahid Hossain, former lead economist of the World Bank’s Dhaka office, told BSS that there had been a tendency in the past to take as much foreign borrowing as was available. 

Now, decisions on obtaining foreign assistance should be based on assessing the actual necessity of various development projects, he said.

He said financing from the World Bank’s International Development Association (IDA) and Japan was no longer available on terms as easy as before.

 Therefore, he said, the government must also consider whether the country has the capacity to repay such loans in the future.

“The government must be extremely cautious in selecting development projects, taking into consideration the country’s capacity to repay both the principal and interest on loans,” Dr Zahid Hossain added.

At the same time, he stressed the need to genuinely implement financial-sector reform initiatives and ensure that their benefits become visible. 

According to him, before undertaking a project, its potential financial and economic benefits and the expected return against the investment need to be considered seriously.

Meanwhile, total foreign aid disbursement stood at US$8.07 billion in FY2025-26, down from US$8.57 billion in the previous fiscal year. 

Disbursement of project assistance declined to US$8.02 billion from US$8.52 billion. However, grant disbursement increased to US$553.95 million from US$454.56 million in the previous fiscal year.

The World Bank was the largest source of foreign assistance in FY2025-26, disbursing US$2.07 billion during the period. The Asian Development Bank (ADB) followed with US$1.91 billion.

Economists believe that an increasing portion of the loans taken during the previous government has now become repayable. 

Therefore, it is essential to accelerate implementation of ongoing projects, complete them within the stipulated timeframe and ensure the expected economic benefits from those projects.

They also recommended negotiating with development partners for loans on better terms and, where possible, prioritising concessional or soft-term financing.