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interest payments are projected at Tk 40,300 crore, equivalent to around $3.3 billion at the prevailing exchange rate.

For the current fiscal year, the revised debt servicing estimate stands at $4.94 billion. It is projected to rise to $5.62 billion in the upcoming fiscal year.

Of the $4.11 billion actual debt servicing costs in FY2024-25, $2.61 billion was principal repayments.

Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said the rise is inevitable as debt stocks expand.

“The arithmetic is simple: if the debt stock rises, its servicing cost will also rise,” he said.

According to finance ministry data, Bangladesh’s foreign debt stock is projected to increase to $123 billion by FY2028-29 from $87 billion at the end of the last fiscal year and $51 billion in FY2020-21.

Zahid identified three major reasons behind the higher servicing burden: rapid debt accumulation following the Covid-19 pandemic, shorter repayment periods than in the past, and rising interest rates.

He also pointed to the repayment structure of World Bank loans, under which borrowers repay 1 percent interest annually during the first 10 years, 2 percent in the next decade, and progressively higher amounts thereafter. As older loans enter later repayment phases, annual obligations rise.

A stronger US dollar is adding further pressure, he said.

Repayment schedules for large bilateral loans are also becoming due.

Annual repayments for the Rooppur Nuclear Power Plant loan are expected to require around $600 million, while repayment of Russia’s $12 billion loan for the project will begin in September 2028.

Chinese loans also require faster repayments due to shorter grace periods and maturities.

According to an Economic Relations Division (ERD) report, Bangladesh borrowed about $9 billion from China under a package until June, of which around $500 million has already been repaid, excluding interest. The interest rate is 2 percent, the grace period is only five years, and the repayment period is 15 years.

Since Covid, Bangladesh has increasingly relied on budget support loans, which begin accruing interest immediately after disbursement. The IMF loans carry comparatively lower interest rates but shorter repayment periods of 10 to 12 years.

Zahid warned that rising repayments pose two broader challenges. Firstly, debt obligations must be met in foreign currency, making repayments costlier as the taka weakens, and they place additional pressure on the budget and balance of payments.

Secondly, although foreign borrowing remains cheaper than domestic borrowing, financing higher foreign currency demand could strain other sectors if fresh external financing on favourable terms becomes harder to secure.

The Finance Division echoed these concerns in its policy statement.

It noted that taka depreciation significantly raises the local currency cost of external debt servicing, as more taka is required to repay the same amount of foreign currency.

Still, the government expects repayments to remain within manageable limits through diversified financing sources and stronger foreign exchange reserves.

The statement noted that Bangladesh’s external debt portfolio remains concentrated in three major currencies -- US dollar, Special Drawing Rights (SDR) and Japanese yen -- which together accounted for about 91 percent of total external debt as of June 30, 2025.

SDRs are IMF‑created reserve asset, valued against a basket of major currencies, that countries can exchange for usable foreign currency to boost their reserves.

USD and SDR-denominated debt represented 71 percent of Bangladesh’s debt portfolio. SDR exposure also indicates continued access to concessional financing from institutions such as the IMF and World Bank.

Japanese yen accounted for 20 percent of the portfolio, largely linked to long-term concessional project financing, while euro and Chinese yuan represented 5 percent and 3 percent respectively.

The ministry warned that heavy exposure to dollar-denominated debt leaves Bangladesh vulnerable to exchange rate fluctuations and global financial conditions.

To reduce such risks, Bangladesh plans to explore financial instruments to hedge against adverse currency movements.

The policy statement projected that public debt would remain broadly stable over the medium term, reaching 38.9 percent of GDP by end-FY29.

However, the financing landscape is expected to become more challenging.

As Bangladesh graduates from least developed country (LDC) status, access to grants and highly concessional financing, characterised by low interest rates, long maturities, and extended grace periods, is expected to decline.

That transition will likely increase reliance on costlier commercial and non-concessional borrowing, raising debt servicing obligations.