A new study warns Bangladesh’s foreign debt has quadrupled since 2009, with energy and infrastructure projects plagued by corruption, cost overruns and weak governance, raising fears of a looming debt-servicing crisis.
Masterminds have hijacked Bangladesh’s energy and infrastructure master plan as foreign debt quadruples, a new study warns.
Bangladesh’s foreign debt has surged nearly fourfold since 2009, while up to 40 percent of public project funds may have been lost to corruption, collusion and inefficiency, according to a new study that warns the country is drifting toward a debt-servicing trap driven by weak governance in energy and infrastructure projects.
The findings were presented on Tuesday at a roundtable titled “Public Debt and Governance” held at the CIRDAP auditorium in Dhaka, organised by the think-and-do tank Change Initiative.
Researchers said Bangladesh’s external debt rose from $23.5 billion in 2009 to nearly $112 billion in 2025, a 377 percent increase over 16 years. At the same time, one out of every five taka in government revenue is now spent on interest payments alone, even before repaying the principal.
“Bangladesh is moving from a moderate debt position towards a repayment risk trap,” the study said, cautioning that statistical opacity and hidden liabilities make the true scale of the risk difficult to assess until liquidity pressures intensify.
The research, supported by Open Society Foundations and conducted in collaboration with SOAS University of London following Sri Lanka’s 2022 sovereign crisis, analysed 42 mega projects between 2009 and 2025 across transport, power, aviation, ports and industrial zones.
It found that around 29 mega projects experienced an average cost overrun of 70.3 percent, while inflated power purchase agreements require nearly $5 billion in annual subsidies to keep electricity affordable.
Fixed capacity payments in the power sector alone are projected to reach 380 billion taka, or $3.5 billion, in 2025 regardless of actual electricity consumption.
‘Governance uncertainty’
The study argues that the debt problem is not merely about ratios but about “governance uncertainty”.
Officially, Bangladesh’s debt-to-GDP ratio has been reported at around 33 percent, often described as safe. But the revised estimate in the study places the “real” ratio at 42 percent when adjusted for hidden and contingent liabilities.
Meanwhile, the foreign income-to-external debt ratio reached 192 percent in 2025, signalling mounting repayment pressure.
“If current trends of mega corruption and weak governance continue, the debt-to-GDP ratio could rise to 65 to 70 percent by 2030,” the report warned.
It estimated that between 23 percent and 40 percent of project value may have been lost due to collusion, inflated costs and inefficiency. Direct government-to-government contracts were found to inflate costs by more than 400 percent compared with transparent competitive methods.
High-value energy projects were identified as particularly vulnerable to political collusion, where returns from overpricing often outweigh incentives for operational efficiency.
“Borrowing is like taking out a long-term mortgage,” the report said. “But if procurement prices are inflated and contracts do not deliver real outcomes, the interest bill arrives on time while the results do not.”
Lessons from Sri Lanka
In a technical presentation, Professor Mushtaq H. Khan drew comparisons between Bangladesh and Sri Lanka’s political economy.
He said weak governance in energy and infrastructure sectors had contributed to Sri Lanka’s sovereign crisis in 2022.
“We do not only lack horizontal checks; we suffer from horizontal collusion,” Khan said. “Instead of imposing more rules from above, we must ensure economic competition that disrupts collusive contracts. Only genuine competition can transform horizontal pressure from a tool of corruption into a mechanism of accountability.”
Following Sri Lanka’s crisis, several countries including Bangladesh have been flagged for rising debt risks linked to power and infrastructure borrowing.
Since 2023, Bangladesh has struggled to make timely payments to private power producers, while major infrastructure loans are entering repayment phases.
The study argues that even manageable debt levels can become fragile if governance weaknesses persist under conditions of rising repayment obligations and currency pressure.
Energy at the centre
Change Initiative co-founder and chief executive M. Zakir Hossain Khan said the country’s energy master plan had been “hijacked by masterminds of corruption”.
“Energy is the lifeblood of the economy,” Khan said. “But if, after crossing $100 billion in foreign debt, we continue to pour $5 billion annually into corruption-ridden power subsidies, Bangladesh will move rapidly towards financial bankruptcy.”
He urged a shift from “borrowing for speed” to “governance by design” where political deals that override economic logic are systematically dismantled.
Khan also framed debt governance within what he called “natural rights-led governance,” arguing that public finance should be assessed against the rights of people and nature rather than merely short-term fiscal frameworks.
Donor and sector responses
Wais Paré, country economic adviser at UNDP, said rising debt reflected growing infrastructure and social protection needs.
“The risk lies in disconnecting financing from policy,” he said. “We must bridge this gap through integrated planning and stronger institutional capacity to ensure borrowing translates into real sustainable development.”
Emma Wind, governance adviser at the UK’s Foreign, Commonwealth and Development Office, said reforms in the power sector were now a fiscal necessity as Bangladesh approaches graduation from Least Developed Country status.
“By strengthening procurement using IMF governance diagnostics and donor expertise, we can ensure a financially stable energy-secure future,” she said.
Mohammad Jahangir Alam Molla, director at the Bangladesh Power Development Board, pointed to recent reforms.
“Repealing special laws and introducing competitive bidding reduced solar tariffs from 10 cents to between 5 and 8 cents,” he said, adding that land availability and diversification were key to long-term sustainability.
Mustafa Al Mahmud, president of the Bangladesh Solar and Renewable Energy Association, said with global solar prices below 5 cents per kilowatt hour continued heavy import dependence was economically irrational.
“Expanding renewables through grid-adjacent land is no longer optional. It is essential for Bangladesh’s survival,” he said.
Kawsar Chowdhury, co-chair of the Bangladesh America Alliance, warned that $5 billion in subsidies and 9,500 megawatts of excess capacity posed an existential crisis.
“To reduce costs and corruption, competitive solar projects on public land, even over canals, are imperative,” he said.
Reform blueprint
The study proposes a series of governance reforms that can be implemented within existing institutional structures:
Open-book procurement: Publication of bid abstracts, supplier origins and variation order logs with mandatory digital e-GP processes beyond set thresholds.
Readiness gates: Verified land acquisition, utility relocation and design checks before signing or construction to prevent cost spirals and delay-driven inflation.
Performance-linked operations: Tying operation and maintenance payments to output and uptime including reform of power sector payment discipline.
Rings of responsibility: Named officials, dated action plans and public tracking of delays to ensure accountability across project chains.
Researchers stressed that transparency alone was insufficient. Effective horizontal checks with adequate enforcement power are needed to identify and prosecute major corruption cases and ensure genuine competition.
Without such structural reforms, they warned Bangladesh risks repeating the trajectory that led Sri Lanka into sovereign default, not because of debt size alone but because of governance failure.
As debt servicing absorbs an ever-larger share of national revenue, the roundtable concluded that the question is no longer whether Bangladesh can borrow more but whether it can govern better.
