Bangladesh has continued to witness a decline in the inflow of foreign loans as it has yet to accelerate the implementation of development projects.

In the first eight months of the current fiscal year (FY) 2024-25, the country, which has been facing a foreign exchange crisis for the past three years, was able to secure $4.13 billion in foreign loans.

This was 17 percent less than in the same period a year ago.

On the other hand, the government's debt servicing has surged, according to the latest data released by the Economic Relations Division (ERD) yesterday.

Bangladesh repaid $2.63 billion in debt during the July–February period of FY25, up 29 percent year-on-year.

In comparison, the country repaid $2.03 billion in the same period a year ago.

As a result, the net foreign loan inflow slumped by 49 percent year-on-year to $1.5 billion in the first eight months of FY25.

The issue has been compounded by sluggish revenue collection, raising concerns about the government's increased reliance on bank borrowing to finance the budget.

Tax collection grew by only 1.76 percent in the July–February period of FY25.

In light of the current forex reserve situation, the Centre for Policy Dialogue (CPD) earlier this week stated that the government should prioritise the implementation of all annual development programme (ADP) projects funded by foreign loans.

"Projects that are almost complete should be given higher priority," it added.

The implementation of projects funded by foreign loans has declined this fiscal year.

Between July and February of FY25, the utilisation of foreign funds stood at just over one-fourth of this year's allocation under the ADP.

A year ago, the implementation rate of development projects funded by foreign financing was 34 percent, according to official data.

Muhammad Shahadat Hossain Siddiquee, a professor of economics at the University of Dhaka, noted that foreign loan disbursement was lower than commitments in FY24.

The trend, however, has reversed in the first eight months of the current fiscal year.

"At first sight, it might seem quite unrealistic, but this is the reality. This has been made possible due to the realisation of prior commitments during the tenure of the current interim government," he said.

He added that if the current commitment trend continues until the end of the fiscal year, the total commitment may stand at around $3.5 billion, indicating a decline of approximately 50 percent compared to FY24.

"Undoubtedly, this will negatively impact disbursements in the upcoming fiscal year, creating additional pressure on foreign currency reserves," he said.

Siddiquee, citing the increase in debt servicing, warned that if the current trend persists, total debt servicing for FY25 could be more than twice the amount in FY24—projected to reach around $4.7 billion, representing a 112 percent increase.

"This scenario signals potential challenges in maintaining stability in the balance of payments," he said.

The CPD also noted that securing financing from foreign sources will be a significant challenge in FY26.

It pointed out that the majority of foreign borrowing depends on the government's ability to design and implement ADP projects, while most budget support relies on policy reforms.

"Consequently, there will likely be increased pressure on bank borrowing to cover the budget deficit," it said.

"The government's fiscal space will be constrained unless private sector borrowing is squeezed, given the liquidity situation in commercial banks and the government's decision not to borrow from the central bank," it added.

Towfiqul Islam Khan, senior research fellow of the CPD, said at the end of the day, the government's ability to mobilise tax revenue would define the fiscal space.

"In the constrained fiscal space, we expected that the government will take initiatives to revisit project costs. We could not see any such significant initiative," he said.