Bangladesh is poised to spend more than $2 billion on servicing its foreign debt from the next fiscal year, with grace periods of many such loans ending in the current fiscal year.
The repayment burden will get heavier when foreign-funded megaprojects, such as Rooppur Nuclear Power Plant and Padma Bridge Rail Link, see the start of principal payments alongside interests within the next four years.
Moreover, interest payments of new loan deals will increase the loan payback load.
Bangladesh will have to deal with maximum pressure in FY27, FY28 and FY29 as its debt repayments will reach at least $2.5 billion during the three fiscal years. Such an upward trend will continue till FY33, according to a report by the Economic Relations Division (ERD).
ERD officials say payments of foreign debts, including principal plus interests, have been going up in keeping with a rise in disbursements every fiscal year.
Since FY13, Bangladesh has been repaying principal and interests amounting to $1 billion or more, but the amount reached $1.9 billion in FY21, they note.
The external debt pay-out further ticked up in the ongoing fiscal year – till March, Bangladesh repaid $1.59 billion to different development partners.
External loan disbursement amounted to $7 billion in FY20 and $7.44 billion in FY21. The growing debt repayment pressure is leading to a fall in net disbursements.
As of June 2021, Bangladesh's outstanding foreign loans stood at $50.87 billion, while there is $48 billion more in the pipeline, according to sources at the ERD.
Zahid Hussain, former lead economist at the World Bank's Dhaka office, told The Business Standard that the ERD's foreign loan repayment calculation is oversimplified because it is already close to $2 billion. The amount will jump further when repayments of some big projects start within a few years.
"If repayments mount this way and disbursements do not increase, net external loans will come down, eventually putting pressure on the budget," he noted.
Flexible loans apart, government agencies take out some high-interest foreign debts that are out of the ERD's account. "We have to calculate such loans too," he added.
The economist suggested speeding up disbursements of foreign loans as repayment amounts are jumping up.
"We also need to increase the use of flexible loans by taking up good projects. At present, We cannot secure such loans owing to a lack of project preparation," he added.
"For example, we may miss out on a loan commitment amounting to around $1 billion from the World Bank's IDA-19 loan package. In this situation, we have to focus more on getting commitments of soft loans and increasing their disbursements," Zahid Hussain pointed out.
Grace periods of many big projects nearing end
The country's largest undertaking, the Rooppur Nuclear Power Project's 10-year grace period is going to end in 2026, meaning that the principal repayment alongside interest will start in 2027. The annual installment amounts to $565 million to be paid for 20 years. In 2016, the government signed a loan deal to the tune of $11.38 billion with Russia.
The repayment of the debt taken for implementing Padma Bridge Rail Link project will also begin from 2024. The principal amounting to $2.68 billion needs to be paid back to the lender China. Bangladesh will have 15 years to make the payments. The yearly installment is $178 million.
Besides, the country needs to repay the principal of another $1 billion loan taken for the "Expansion and Strengthening of Power System Network under DPDC Area" project from 2025.
The principal of two Chinese loans meant for Karnaphuli Tunnel needs to be repaid from the current fiscal year. The two loans, which amount to $800 million, will be repaid in 15 years.
The principal of the World Bank's "Bangladesh Private Investment and Digital Entrepreneurship" project involving around €460 million has to be paid in installments from 2025.
There are some other big projects that will see the end of their grace periods soon. Payments of interest and other fees start just after a foreign loan comes into effect. The repayment of principal amounts begins after the end of grace periods.
As of FY21, Bangladesh has repaid foreign debts amounting to $27.9 billion, including $20.7 billion in principal and $7.23 billion in interests, to various development partners.