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The International Monetary Fund has, for the first time, set a ceiling on how much Bangladesh can borrow from abroad, citing rising risks in the country’s external debt.
The lender introduced the new condition for the next instalment of its $5.5 billion loan package during the fourth and fifth tranche review in June this year.
Under the terms, Bangladesh will be allowed to borrow a maximum of $8.44 billion during the ongoing 2025-26 fiscal year, with a cap of $1.91 billion in the first quarter and $3.34 billion in the first half. The IMF will closely monitor foreign borrowing every quarter.
No such ceiling was there when the IMF originally approved a $4.7 billion programme in 2023. It approved the fourth and fifth instalments, a top-up of the original credit by about $800 million with a six-month extension in June. So far, Bangladesh has received $3.6 billion.
A senior finance ministry official said the newly introduced ceiling on foreign loans is based on the IMF’s latest Debt Sustainability Analysis (DSA), which reclassified Bangladesh as a “moderate-risk” country for two years in a row in FY23 and FY24.
The downgrade from a “low-risk” country reflects the growing pressure of repayments against export earnings and revenues.
According to the DSA, Bangladesh’s debt-to-export ratio jumped to 162.7 percent in FY24, up from the IMF’s earlier projection of around 116-118 percent. The debt service-to-revenue ratio has also risen, squeezing the government’s fiscal space for fresh borrowing.
The ratios consistently exceed the IMF thresholds in stress tests due to a downward revision of export figures, the IMF said.
The finance ministry official, requesting anonymity, told The Daily Star, “Although Bangladesh’s total external debt remains well below all IMF thresholds, risks have increased in certain areas, prompting this precautionary measure.”
Economists say this shift marks a turning point.
“The IMF used to paint a golden picture of Bangladesh’s debt outlook. That narrative seems to be changing,” said Zahid Hussain, former lead economist of the World Bank’s Dhaka office.
He added that the previous complacency based on debt-to-GDP ratio is being reconsidered in light of recent reserve shortfalls and foreign currency liquidity challenges in settling external payments.
Selim Raihan, executive director of SANEM, said the IMF’s step seems “cautionary and appropriate” to ensure fiscal discipline during the political transition ahead of the election.
“Over the years, foreign loans have risen significantly, and so has the repayment burden. Since these loans must be repaid in foreign currency, we need to assess repayment capacity not just by debt-to-GDP ratio, but also by revenue and export,” he said.
He warned that relying too heavily on loans to cover expenses during this stressed economic period of low investment would be unhealthy, even as reserves, remittances, and revenues show some improvement.
Foreign borrowing surged under the previous Awami League government, driven by mega projects and pandemic-related expenses. An Asian Development Bank report last month said Bangladesh saw the fastest growth in foreign debt among South Asian nations, with public and publicly guaranteed loans more than tripling in 13 years.
Government data shows external debt rose from $20.3 billion in FY10 to $68.8 billion in FY24. As of June 2025, the figure stood at $80.19 billion.
Debt servicing also grew sharply, from $876 million in FY2010 to $4 billion last fiscal year.
Finance ministry officials, however, downplayed concerns, saying the interim government’s foreign borrowing is much lower than in previous years.
In FY25, Bangladesh took $8.32 billion in new loans, down 22 percent from the previous year.
This fiscal year, new borrowing so far has been negligible, with only $84 million taken in July and a $150 million ADB loan signed in August, well below the IMF’s ceiling.