Jul-May Foreign Aid: 67pc goes into debt servicing

As much as 67 per cent of the foreign aid disbursed in the first 11 months of the current fiscal year went into repaying earlier loans, according to the Economic Relations Division (ERD) data released on Sunday.

From July to May of FY25, development partners disbursed $5.61 billion in loans for various development projects, a 20 per cent drop compared to  $7.02 billion released during the same period of the previous fiscal year.

At the same time, Bangladesh spent $3.78 billion to repay principal and interest on earlier loans, up from $3.07 billion during the corresponding period last year, marking an increase of over 23 per cent.

This means two-thirds of the foreign loans received during the July-May period were consumed by debt servicing, leaving limited fiscal space for new development spending.

While remittance inflows and export earnings have provided some relief to the country's foreign exchange reserves and helped cushion the debt burden, project implementation bottlenecks continue to prevent the smooth release of foreign aid.

In response to the growing repayment obligations and falling aid disbursements, the government has lowered its foreign loan target for the upcoming fiscal year to Tk 850 billion, down from Tk 1 trillion in the original budget for FY25.

The ERD data also shows a sharp decline in new loan commitments by development partners.

As of May, new loan commitments stood at $5.49 billion, a significant 31 per cent drop from $7.93 billion during the same period last year.

Analysts say the falling disbursement and shrinking loan commitments highlight ongoing concerns over the efficiency of project execution and aid absorption, which could limit future financing opportunities and strain development goals.

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