Originally posted in The Daily Star on 10 November 2026
The recent World Bank International Debt Report 2026 reveals that every Bangladeshi now carries about $646 of foreign debt on paper, that is, the country’s per capita external debt. The country’s external debt stood at $113.44 billion at the end of 2025. This is 8.6 percent more than the previous year, and nearly triple the 2015 total of $38.77 billion.
The World Bank report also shows that Bangladesh’s external debt per person exceeds South Asia’s average of about $564, although it is higher than the amount in some neighbouring countries and lower than in others. These figures, however, should be read carefully because countries differ in income, population, foreign exchange earnings, interest rates, repayment schedules, and their economy size. India, for example, has a much larger economy and export base than Bangladesh. Small island countries may have higher debt per person, but their economies and borrowing patterns differ. For a fair comparison, debt relative to GDP, exports and government revenue should be assessed.
In assessing debt-to-GDP ratio, the more important questions are whether the debt is creating future income, whether the country can repay it without squeezing essential spending, and whether its foreign exchange earnings can meet external obligations.
Those questions have become increasingly pressing. In 2025, Bangladesh’s external debt stood at 23.6 percent of gross national income and 210.5 percent of exports, while debt service absorbed 15.7 percent of export earnings. This indicates that debt management is crucial to fiscal management and foreign exchange stability, particularly as the country prepares to graduate from the Least Developed Country (LDC) category.
It is also important to distinguish external debt from total public debt. The World Bank’s external debt figure covers government and publicly guaranteed borrowing, private borrowing that is not publicly guaranteed, and short-term debt. Using a broader measure of public and publicly guaranteed liabilities, the International Monetary Fund (IMF) estimated Bangladesh’s total public debt at 41.3 percent of GDP in FY2024-25, with more than half of that stock comprising domestic debt. The figures differ because they cover different borrowers and types of debt, so they should not be presented as though they measure the same thing.
The debt-to-GDP ratio is concerning because the economy has not yet achieved durable stabilisation. It is going through a difficult period, marked by persistent inflation, subdued private investment, a stressed banking sector, weak revenue mobilisation, low foreign direct investment, and exports vulnerable to external shocks. In this context, debt service competes directly with spending and reforms needed to strengthen productivity and create jobs.
Bangladesh’s debt has risen in part because borrowing has funded infrastructure and covered budget deficits. Loans for well-planned ports, power connections, railways or flood protection projects can boost productivity and strengthen the economy’s ability to repay. Problems arise when project costs rise, implementation is delayed, or the completed asset fails to deliver the expected economic and fiscal returns, as observed many times over the past decade or so. The debt remains, but the promised growth dividend does not materialise.
The exchange rate adds another risk. When the taka depreciates, the local currency cost of repaying foreign debt rises, even if the loan’s dollar value remains unchanged. Projects that depend on imported equipment but generate no foreign exchange earnings can deepen this mismatch. The government should, therefore, assess not only a project’s construction costs and expected domestic benefits, but also its foreign currency needs and contribution to export capacity, import savings, or other sources of foreign exchange.
Debt composition also deserves attention. World Bank data shows that multilateral creditors held about 39.8 percent of Bangladesh’s external debt stock in 2025, while concessional debt accounted for about 32.8 percent. These are distinct categories because multilateral does not automatically mean concessional. As the country graduates from the LDC category in three years, it must prepare for a financing landscape in which some forms of preferential support may become less available, and new borrowing may carry less favourable terms. Concessional finance will not disappear overnight, but it should not base its plans on the continuation of today’s terms.
To develop a well-planned debt management strategy, first, Bangladesh needs a credible medium-term revenue plan. The immediate priority should be to broaden the tax base, making it fairer and more predictable. Digital tax administration, fewer discretionary exemptions, stronger compliance, simpler procedures, and a clearer separation of tax policy from tax collection can raise revenue without shifting the entire burden onto formal businesses and wage earners.
Second, the government should manage debt across the entire public sector. It needs a regularly updated debt strategy that details borrowing by currency, interest rate, maturity and creditor, as well as annual repayment obligations. It should also disclose contingent liabilities arising from state-owned enterprises, guarantees and public-private partnerships. Stress tests should assess the effects of slower exports, a weaker taka, higher interest rates, and increased spending on climate-related disasters. Greater transparency can support better decisions before liabilities become budget shocks.
Third, public investment management needs strengthening. Every large project should undergo an independent cost-benefit review that includes realistic estimates of land acquisition, import, maintenance and foreign exchange costs. Projects should be prioritised according to their contribution to productivity, resilience and jobs, while weak projects should be redesigned or halted. Procurement, completion timelines and post-completion performance should be reported openly. Higher public spending is not necessarily a development achievement if assets are delayed, underused or too expensive to maintain.
Fourth, Bangladesh should build foreign exchange earning capacity before graduation changes the terms of market access. The European Union will provide a three-year transition for graduating countries to continue accessing Everything But Arms (EBA) preferences, with the possibility of Generalised Scheme of Preferences Plus (GSP+) for eligible countries. That bridge is useful, but market access after it cannot be taken for granted. Bangladesh signed an Economic Partnership Agreement with Japan in February 2026, and a Comprehensive Economic Partnership Agreement with South Korea in August 2026. These arrangements can support trade and investment, but only if firms can meet rules of origin and labour and environmental requirements, and if customs, ports and logistics become more reliable.
The government should use the transition period to identify which products, firms and jobs are most exposed to changing preferences, while pursuing practical market access arrangements. Export diversification must go beyond routine promotion of promising sectors. It needs predictable regulation, access to finance, reliable energy, skilled workers, lower logistics costs and the removal of anti-export biases created by high, uneven tariffs. Productivity gains and greater value addition will make exports more resilient than reliance on low wages or temporary preferences.
Finally, debt policy must be aligned with the reforms that drive growth. Weaknesses in the financial sector, unreliable energy, limited competition and a difficult business environment all reduce returns on public and private investment. Thus, revenue mobilisation, banking stability, energy security and the business environment must be strengthened as they are integral to debt management. A more productive economy generates more tax revenue and foreign exchange, making debt easier to service.
We cannot avoid borrowing. But we must ensure that borrowed funds boost productivity and resilience, on terms aligned with future repayment capacity. Per capita debt is a useful starting point for public discussion, but not the best measure of a country’s financial health. The key test is whether each new loan leaves Bangladesh with an asset, a stronger revenue base, or greater capacity to earn foreign exchange.
Dr Fahmida Khatun is an economist and distinguished fellow at the Centre for Policy Dialogue (CPD). Views expressed in this article are the author’s own.
