Interest payment against foreign loans has swelled, according to a government projection, raising concerns about its growing impact on debt management in the coming years.
The government has projected that Tk 20,000 crore will be required to clear interest payments in the upcoming FY25, compared to the projection of Tk 14,600 crore made one year ago amid economic headwinds.聽
The new projection also shows that the government has to set aside Tk 23,600 crore in the FY26 budget to clear the interest payment, Tk 5,800 crore higher than the previous projection of Tk 17,800 crore.
Moreover, the interest payment has been projected to hit more than five times to Tk 26,000 crore in FY27 from the original payment of Tk 4,560 crore made in FY22.
Experts attributed the local currency depreciation and borrowing from external sources for the implementation of mega projects to the sharp rise in projections.
The government鈥檚 outstanding foreign debt stood at $62.4 billion in FY23, marking a more than threefold increase in 14 years for the implementation of mega projects such as the Roopur Nuclear Power Plant, the Padma Bridge Rail Link Project, the Karnaphuli River Underneath Tunnel, and the Metro Rail Line Project.
The new projection reflects mounting pressure on external debt management, said Policy Research Institute executive director Ahsan H Mansur.
The new projections are available in the Medium-term Macroeconomic Policy Statement for 2024-25 to 2026-27.
MTMPS, a major budgetary document from the finance division, said that the proportion of external interest payments in the total budget was expected to rise from 0.9 per cent in FY22 to 2.6 per cent in FY27.
According to the Medium-term Macroeconomic Policy Statement 2024-25 to 2026-27, external debt is having an increasingly significant impact on the budget.
MTMPS said that interest expenditure on foreign loans was gradually increasing because of the tight monetary policy adopted by the advanced countries since 2022.
Interest expenditure on foreign loans is expected to remain above 2 per cent in total expenditure in the medium term for reference interest rates to remain elevated in advanced countries, said the MTMPS.
The MMTPS also said graduation from the group of Least Developed Countries鈥� bloc would gradually shrink the window for the country to get concessional loans from external sources.
Referring to a subsequent rise in external debt to 15.0 per cent of gross domestic product in FY23 from 10.1 per cent in FY17, the MMTPS attributed the increase to the depreciation of the local currency taka.
鈥楾he impact of currency depreciation on external debt levels underscores the need for careful monitoring and management of external debt risks to maintain economic stability and resilience,鈥� said the MTMPS.
Economists say that the government should be selective about foreign loans for implementing development projects, as interest payments count against the disbursement of loans and the principal amount.
If required, the government should go for debt restructuring to maintain the country鈥檚 good record of debt repayment, said former Bangladesh Bank governor Mohammed Farashuddin.
The local currency has depreciated by around 35 per cent against the US dollar since FY23 because of a shortage of dollars, which, according to economists, has deepened the economic crisis.
They also said that the government was borrowing from the International Monetary Fund under the $4.7 billion loan programme to tackle the shortage, pulling down forex reserves to $18 billion from $48 billion.
The IMF has already disbursed $1.1 billion and is expected to disburse $1.15 billion in the current month.