Repayment of foreign debt instalments, a widening trade deficit, and rising subsidies on fuel and fertiliser driven by the Middle East crisis have combined to intensify pressure on Bangladesh’s economy.
Economists warned that without timely foreign assistance, pressure on reserves will increase and overall economic stability could come under strain. The outlook darkens further as uncertainty over foreign budget support persists.
According to official data, the government must repay about $5 billion in external debt instalments in the current fiscal year, with no full funding arrangement in place. At the same time, the trade deficit widened to nearly $17 billion in February.
The Middle East crisis is also pushing up the subsidy burden. Bangladesh now needs an additional $3.2 billion in budget support in the final four months of the 2025–26 fiscal year ending in June.
Although discussions with development partners are ongoing, failure to secure the financing may force the government to draw down foreign exchange reserves, which stand at around $30.3 billion under BPM6. A year earlier, reserves had dropped below $20 billion after settling about $7 billion in outstanding liabilities inherited from the ousted Awami League government.
“Even if the Middle East conflict ends, its economic impact will persist for several months,” said economist M Masrur Reaz.
“As a result, the government will need additional subsidies, which cannot be financed from reserves. There is no alternative to external borrowing,” added Masrur, also Chairman Policy Exchange Bangladesh.
The government has no plan to reduce subsidies or raise fuel prices. Prime Minister’s Economic Adviser Rashed Al Mahmud Titumir said subsidies are being maintained to prevent inflation from placing additional pressure on the public. He indicated the support would continue.
Uncertainty over loans from the International Monetary Fund (IMF) has added to concerns, as differences have emerged over reforms in the financial and revenue sectors.
Although Finance Minister Amir Khosru Mahmud Chowdhury spoke of assurances of receiving $2 billion, officials involved in IMF discussions said the outcome remains unclear.
If IMF support does not materialise, loans from other agencies may also be delayed.
Former World Bank Lead Economist Zahid Hussain said the challenges are now multidimensional, with high inflation, weak investment, falling export earnings, and lower-than-expected revenue collection complicating the outlook.
He said securing external financing will require reforms in the financial sector, stronger banking discipline, and greater accountability in government actions.
Bangladesh’s external debt stood at $113.51 billion as of December 2025, including $93.5 billion owed by the government, according to Bangladesh Bank.
Of this, $4.74 billion in principal and interest must be repaid in the current fiscal year. Rising fuel and fertiliser costs may add another $2.61 billion in subsidy expenditure between March and June.
Finance Ministry officials said a significant portion of debt servicing is expected to come from budget support loans, but there is a shortfall of about $600 million. Combined with higher subsidy costs, total financing needs stand at $3.2 billion in the current fiscal year.
The Finance Division has requested the Economic Relations Division (ERD) to arrange the funds through a letter issued on 12 April.
Bangladesh has sought $2 billion in budget support from the IMF and the World Bank during meetings on the sidelines of the Spring Meetings in Washington. While the World Bank has shown interest, the IMF has yet to respond, according to officials familiar with the discussions.
The ERD is also engaging with other development partners, though funding from most lenders depends on IMF support.
Bangladesh’s delegation has held talks with the IMF’s Asia and Pacific Department on the fifth and sixth tranches of the $5.5 billion loan programme. The meeting, held in Washington on Wednesday afternoon local time, reviewed economic progress, reform efforts, and programme implementation.
Officials said Bangladesh faced questions over financial and revenue reforms. Three more meetings with IMF officials are scheduled until 17 April.
An IMF mission is expected to visit Bangladesh after 23 April to meet Bangladesh Bank, the Finance Ministry, and the National Board of Revenue. A report will follow, with a board decision expected in June.
If approved, Bangladesh may receive $1.3 billion in the fifth and sixth tranches of the ongoing loan programme in July. Additional budget support, if cleared, could be released by June.
Masrur Reaz said Bangladesh can also seek loans from the Islamic Development Bank, the Asian Development Bank (ADB), and the World Bank.
Zahid Hussain said progress under the IMF programme could unlock the next tranches, while about $8 billion in World Bank financing remains in the pipeline, alongside potential support from Jica.
The IMF may provide up to $50 billion in immediate financial assistance to countries affected by the Middle East crisis, while the World Bank may provide $20 billion to $25 billion.
A senior ERD official said the government has instructed urgent arrangements for external financing. Discussions with multiple agencies are ongoing, with some positive signals emerging.
The official said Bangladesh may secure about $1 billion in budgetary support from the ADB, while talks continue with the IMF, the World Bank, the Asian Infrastructure Investment Bank and other lenders.
Low development spending offers limited relief
Despite external pressures, lower development spending has eased some domestic strain. Annual Development Programme (ADP) spending is at its lowest level in 16 years, with only 21 per cent of allocations used in the first seven months.
Lower spending has reduced reliance on bank borrowing, while repayments have increased. As of 16 April, net borrowing from banks stood at Tk82,700 crore, or 79.5 per cent of the fiscal target. In the previous fiscal year, the government borrowed Tk169,000 crore against a target of Tk129,000 crore.
However, weak revenue collection may increase borrowing in May and June. The government has already raised Tk10,000 crore through special auctions of treasury bills and plans to issue sukuk bonds worth Tk6,000 crore in May and Tk9,000 crore in June, according to Bangladesh Bank.
