External interest payments will continue to grow and will be almost double in the next three financial years, while the government is struggling to meet its overseas debt obligations due to both internal and external factors.

Interest payments against overseas public borrowing are projected to increase significantly from Tk 22,000 crore in the outgoing financial year 2025–26 to Tk 40,300 crore in FY29, according to the Medium-Term Macroeconomic Policy Statement for FY 2026–27 to FY 2028–29.

- Interest payments to double to Tk 40,300cr in FY29
- Interest payments to rise to 0.46pc of GDP
- Principal repayments to reach $4,276m

The government on June 11 proposed an expansionary national budget worth Tk 9.38 lakh crore for the 2026–27 financial year, with an ambitious revenue target and hefty allocations for debt servicing, pay hikes for government employees and growing subsidies, amid global economic uncertainties.

Internal interest payments, accounting for the majority of overall interest payment expenditures, are projected to rise from Tk 1,05,000 crore in FY26 to Tk 1,22,400 crore, according to the policy statement released on June 11.

The policy paper also said that internal interest payments would stand at 1.4 per cent of gross domestic product in FY29, down from 1.6 per cent in FY26, compared with external interest payments, which would rise to 0.46 per cent from 0.35 per cent over the same period.

Economists attributed the quick rise in external interest payments to higher reliance on external borrowing, especially budget support to meet the deficit, which is proposed at Tk 2.43 lakh crore for FY27.

In the forthcoming FY27, beginning on July 1, the government has projected Tk 43,841 crore in budget support, which, unlike project loans, comes with policy conditions, higher interest rates and shorter maturities from multilateral and bilateral lenders.

In FY26, the immediate past interim government projected Tk 46,249 crore in budget support, but the Finance Division later revised it down to Tk 20,253 crore after the International Monetary Fund

stalled the release of about $1.3 billion under a $5.5 billion loan programme in June.

Public sector external debt rose to $90.91 billion in March 2026 from $85.92 billion a year earlier, an increase of nearly $5 billion, with the public sector alone accounting for about 82 per cent of the country’s external debt stock.

Centre for Policy Dialogue distinguished fellow Mustafizur Rahman said that the overall external debt burden looked more worrying when principal amounts were taken into consideration.

At the end of FY26, principal repayments on external debt are expected to rise to $3,196 million, while in FY29 the amount is projected to reach $4,276 million, according to the Medium-Term Macroeconomic Policy Statement.

The statement said that rising repayment obligations in the coming years would be driven by factors such as loan maturities, currency depreciation and the end of grace periods on certain loans.

The depreciation of the Bangladeshi currency, the taka, against the US dollar significantly increases the cost of servicing external debt, as more taka is needed to repay the same amount of foreign currency, economists said.

The local currency has lost a considerable portion of its value over the past four years, falling from Tk 85 per US dollar in 2022 to Tk 122 recently.

‘This has exacerbated the overall external debt situation,’ noted M Masrur Reaz, chairman and chief executive officer of Policy Exchange Bangladesh, a research organisation.

The policy statement observed that effective management of external debt and interest payments was fundamental to ensuring macroeconomic stability, protecting foreign exchange reserves and fostering sustainable economic growth.

Besides, maintaining international creditworthiness and securing future development prospects also depend heavily on prudent debt management, economists said.

Since early this calendar year, the IMF has revised Bangladesh’s external debt risk from low to moderate, driven by foreign exchange pressures, a stagnant tax-to-GDP ratio and a surge in debt servicing costs.