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It is hardly surprising that foreign aid is once again poised to occupy a central place in the country's upcoming development budget. Over the years, dependence on external financing has evolved from a temporary necessity into an enduring reality, despite the increasingly stringent lending conditions imposed by development partners and the mounting burden of repayment obligations now weighing heavily on the government. The proposed Annual Development Programme (ADP) for the next fiscal year reflects this reality with striking clarity, as it envisages a development agenda heavily reliant on foreign loans.
Officials note that for the first time in nearly two decades, such a heavily loan-dependent development programme is being formulated after a period of fiscal restraint that marked the interim administration. Faced with both global and domestic economic shocks, the previous government had pursued a cautious strategy by cutting project aid allocations for two consecutive years in an effort to reduce dependence on external borrowing. That policy, however, now appears to have been reversed. The new administration seems prepared to embrace foreign financing once again as a means of sustaining development momentum and addressing growing infrastructural and economic demands.
The project-aid target in the forthcoming ADP has been proposed at Tk 380 billion, representing a sharp 53 per cent increase over the revised ADP allocation of the outgoing fiscal year. The Planning Commission has already finalised a Tk 3.0-trillion ADP for FY2027, of which Tk 1.10 trillion is expected to come from external sources in the form of project aid, largely loans. The remaining Tk 1.90 trillion will be mobilised domestically. By comparison, the current fiscal year's Tk 2.0-trillion ADP included Tk 720 billion in foreign-funded project aid, while Tk 1.28 trillion was financed from internal resources generated mainly through revenue collection.
The scale of the proposed increase reflects not only the government's renewed appetite for large-scale development spending but also the growing difficulty of financing ambitious infrastructure projects solely through domestic resources. Bangladesh's development trajectory over the past decade has increasingly relied on external borrowing, particularly for megaprojects that require substantial upfront capital. Indeed, a Financial Express analysis shows that the sharpest rise in project-loan allocation previously occurred in FY2016-17, when work began on transformative ventures such as the Rooppur Nuclear Power Plant and the metro rail system.
Yet the optimism surrounding accelerated development is accompanied by a deepening sense of financial vulnerability. The burden of foreign debt servicing has now reached unprecedented levels. In FY2025 alone, the government repaid Tk 500 billion in foreign debt, including both principal and interest - the highest amount ever recorded. In the current fiscal year, debt servicing during the first nine months alone stood at Tk 430.61 billion, marking a 10 per cent increase over the same period of the previous year.
What makes the situation more concerning is that the pace of repayment is now beginning to outstrip the inflow of new foreign loans on a monthly basis. This marks a significant shift in the country's external financing landscape. Bangladesh, once regarded as a relatively low-debt economy benefiting from generous concessional assistance, is gradually entering a phase where repayment obligations are becoming increasingly difficult to manage.
The challenge is expected to intensify further as repayment schedules for several major projects begin to mature. The repayment of the Russian loan for the Rooppur Nuclear Power Plant, for instance, is due to commence soon, adding another Tk 46.36 billion annually to the country's debt-servicing obligations. Similar repayment commitments tied to other large infrastructure projects are also expected to come into effect over the next few years, placing additional strain on the national budget.
Recent findings from the Implementation Monitoring and Evaluation Division (IMED) also highlight a broader structural trend. Over the past five fiscal years, government dependence on foreign loans and grants has steadily increased, while the contribution of domestic resources to development spending has declined. At the same time, the availability of concessional loans on favourable terms has gradually narrowed. Development partners which once extended soft loans are increasingly shifting towards market-based lending mechanisms, thereby raising borrowing costs and shortening repayment windows.
Major development partners such as the World Bank, the Asian Development Bank, and the Japan International Cooperation Agency are reportedly adopting stricter lending conditions, reflecting broader changes in global development financing. Grants, once an important component of external assistance, have now become marginal. According to the Economic Relations Division, more than 90 per cent of external assistance disbursed in FY2024-25 came in the form of loans.
As Bangladesh aspires to sustain economic growth and meet its development ambitions, foreign aid and external borrowing may indeed remain indispensable. However, the growing debt burden serves as a reminder that development financed through borrowing comes with obligations that future generations must ultimately bear. The challenge before policymakers is not merely to secure foreign financing, but to ensure that the borrowed money is spent efficiently on productive investment and sustainable growth.