Is Bangladesh Heading for Debt Traps?

Once, our development journey was a symbol of our national self-confidence. Poverty alleviation, the unprecedented expansion of infrastructure, power generation and the radical transformation of road and rail communication made our country an "emerging economic success story" on the world stage. International organizations, too, were profuse in their praise of this progress.

However, in recent years, uncomfortable questions have crept into that success story. Moving beyond the discussion tables of economists, even policymakers and government officials are now admitting that the country is heading toward the risk of a debt cycle or a "debt trap."

This concern did not arise in a vacuum. In the past decade, we have seen the implementation of many visible mega-projects. Most development projects were undertaken with loans. A state taking a loan is not a crime. Almost all developing countries borrow funds to accelerate growth; even many developed nations rely regularly on debt. The problem begins when debt is used inefficiently or when it fails to generate future income and becomes merely a burden. 

In our country, a large portion of debt has been used in the infrastructure sector. Projects like the Padma Bridge, Metro Rail, Karnaphuli Tunnel, Rooppur Nuclear Power Plant and various expressways are undoubtedly necessary for a modern state. But the question is: Are these projects providing an "economic return"? Debt cannot be repaid with emotion; it must be repaid from the income generated by the projects built with that money.

A closer look at the debt figures deepens the concern. By the end of 2024, external debt stood at approximately $105 billion. In 2020, it was only $73.55 billion—meaning it increased by about 42% in just five years. By the end of 2025, it crossed $112 billion. Public sector external debt also reached $74.34 billion by the end of the 2024-25 fiscal year.

The real problem here is the pressure of debt repayment. According to the World Bank’s "International Debt Report 2025," our debt repayment is now consuming about 16% of export earnings. Furthermore, the volume of external debt has reached 192% of our export earnings, crossing the IMF’s risk threshold (180%). Most alarmingly, the amount of debt repayment has increased by 617% over the last 15 years—the fastest growth in South Asia.

So, are we already trapped? Strictly speaking, not yet. The IMF's recent Debt Sustainability Analysis (DSA) suggests that the risk of external debt remains low to moderate. The public and publicly guaranteed debt-to-GDP ratio is around 38.5%, which is controlled compared to many countries. However, under "export shock" stress tests, some indicators are already breaching limits.

A "debt trap" generally refers to a situation where new loans must be taken to pay off old debts and interest. Our country hasn't reached that point yet. While debt may still seem manageable as a percentage of GDP, the pressure is mounting rapidly in terms of actual capacity. As the price of the dollar has risen, import costs have increased along with interest rates. Although exports and remittance flows are stable, they are not growing at the desired pace. Between 2026 and 2030, when the repayment of large installments will begin, the pressure will become even more apparent.

 
Meanwhile, debt repayment has now become the second-largest sector in the budget. The tax-to-GDP ratio has dropped to nearly 7%. Revenue is low, defaulted loans in the banking sector have exceeded 35% and the budget size is shrinking. In this situation, the risk of falling into a debt cycle is very high.

The income from the mega-projects funded by massive loans is not sufficient to repay those debts. The reason behind this is that many of our mega-projects were accepted more for political logic than economic logic. There are photos of inaugurations and the clamor of publicity, but a lack of full functionality. In some places, there are fewer passengers; in others, transport capacity is not being fully utilized; and elsewhere, maintenance costs exceed income. Denying this reality will only prolong the problem.

If the Padma Bridge, Metro, and power projects yield actual results and increase exports, the debt will remain sustainable. But when a large portion of mega-projects is inefficient, money is lost to corruption and reliance is placed solely on debt without attempting to increase revenue—that is when the trap is formed.

It is true that we have not yet fully fallen into a debt trap. But it cannot be denied that we are heading down that path. A debt trap is not a sudden accident; it builds up slowly. First comes discomfort, then pressure, then the obligation of limited choices and finally, helplessness. In history, Sri Lanka, Pakistan and many African countries stand as clear examples before us.

Now the question is: Can we avoid that consequence? The answer is—yes, we can. But for that, we need policy courage. In the future, economic logic, not political logic, must be prioritized in adopting projects. Before every large project, its financial feasibility, return, maintenance cost and long-term impact must be analyzed transparently. Furthermore, the tax system must be reformed to increase the number of actual taxpayers. Effective and visible initiatives must be taken to bring back laundered money. If this wealth returns to the country, dependence on debt can be significantly reduced.

Inefficiency, corruption and waste in state-owned enterprises must be reduced. These are not just administrative issues; they directly increase debt pressure. Full transparency must be ensured in borrowing and spending. This transparency is impossible without parliamentary oversight, media investigation and civil society participation. 

Debt should never be mistaken for development itself. At best, it is a tool—one that can support growth if used wisely, and destroy it if misused. The real strength of an economy comes not from borrowed money, but from production, exports, skilled human capital, technology and innovation. We are not in a debt trap—yet. Whether we stay out of it will depend on the choices we make now.


Amir Mohammed Khosru is a banker 
and a columnist.