Foreign Debt Hits Historic 5% Rate: Concerns Over Government’s New ‘Economic Risk’

Staff Correspondent

The Bangladesh government has received approval from the Asian Development Bank (ADB) to borrow a total of $753 million for three key infrastructure projects, at the highest interest rate in history—nearly 5%. The terms of these loans are so tough that economists are calling them a “new level of economic risk.”

In the context of criticism of the Awami League government’s foreign debt policy, there has been public concern that the Yunus government’s decision will increase long-term pressure on the country’s economy.

The loans were approved at a recent meeting of the Standing Committee of the Economic Relations Department (ERD). They include $91 million for the ‘Network Northwest Distribution Modernization Project’, $508 million for the ‘Chittagong-Dohazari Meter Gauge Railway to Dual Gauge Railway Project’ and $154 million for the ‘Khulna Water Supply Project (Phase-II)’.

These projects are aimed at modernizing the electricity distribution network, improving rail connectivity, and ensuring reliable water supply in Khulna.

The loan tenure is fixed at 25 years with a grace period of 5 years. The interest rate is fixed as Secured Overnight Financing Rate (SOFR) + Lending Spread + Maturity Premium. The SOFR rate as on September 16 was 4.39%, which when added together with the spread (0.50%) and premium (0.10%) brings the overall interest rate to around 5%.

In addition, a 0.15% commitment fee will have to be paid separately. Borrowing at this rate is unprecedented in the history of Bangladesh, higher than any loan from previous governments.

Economists and analysts have been sharply critical of the decision. Mustafa K. Mujeri, executive director of the Institute for Inclusive Finance and Development, said, “Borrowing at such high interest rates will put additional pressure on the country’s economy. The amount of foreign debt has tripled since the previous government’s time—from $30 billion in 2014 to more than $97 billion in 2024—and now the interest rates are also the highest. This will burden not only the infrastructure but also future generations.” He added, “The previous government was accused of destroying the economy, but borrowing at this rate now shows that the problem is ongoing.”

According to Bangladesh Bank data, the highest repayment of foreign debt in the first nine months of the current fiscal year was $3.21 billion, which is 25% more than last year. According to a World Bank report, the country’s foreign debt has increased by 125% in a decade, and interest payments have increased by 44%. In this context, it is estimated that the interest burden of new loans will occupy up to 2.6% of the country’s budget.

The government says these loans are essential for infrastructure development, which will strengthen the economy in the long run. But the question is being asked by the public – is it a ‘comfortable’ decision to borrow at such high interest rates when the economy is facing a dollar crisis and inflation?

Economists are demanding that the government reconsider its lending policy now and shift towards concessional lending, otherwise the country’s economic stability will become even more at risk.