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Bangladesh - Bank & Finance - August 7, 2023

Debt repayment pressure ahead

Zarif Mahmud: As time goes by, the debt repayment pressure will increase. And Bangladesh is taking loans again. As a result, the pressure will continue to increase. Analysts say there are several projects in foreign debt that have been overrun. Bangladesh will have to pay the price.
According to the Finance Ministry’s calculations, in the outgoing financial year (2022-23), 47 percent more debt has to be paid than the previous year. And the payout has doubled in the last six years.
Interest and principal repayments of the loan in the financial year 2022-23 were $2.74 billion. Which is Tk 201 crore in the fiscal year 2021-2022. $73 million had to be overpaid in one year.
According to the report of the Ministry of Finance, $328 million will have to be repaid in the financial year 2023-24. After six years in the financial year 2029-30, the amount will be $5.15 billion. If Bangladesh does not take any new loans, it will have to repay the interest and principal until 2062.
In the financial year 2012-13, Bangladesh had to repay the debt of $ 110 crores. In 10 years, it increased to $201 crore in FY2021-22. Meanwhile, loan financial aid exemptions are shrinking. Loan commitments are also declining. Then there is $40 billion in pipeline for Bangladesh. More than 90 percent of them are soft loans.
At present, the total foreign debt of Bangladesh is $7,229 million. More than Tk 759,000 crores in Bangladeshi currency. The International Monetary Fund (IMF) released this estimate for the year 2020-21 last February. Last January 30, the IMF approved a loan of $4.7 billion dollars to Bangladesh. The first installment of which has released $476.70 million.
Out of this, the loan to the World Bank is $1,816 million, ADB is $1,328 million, Japan is $9,230 million, Russia has taken $509 million and $476 million from China.
Bangladesh Bank in its latest report in July said Bangladesh’s domestic and foreign debt stood at Tk 16.14 lakh crore. The amount of debt per capita in the country is Tk 95,019. Bangladesh’s foreign debt is 17 percent of total GDP. Foreign debt is 43.5 percent of the government’s total debt.
The debt-GDP ratio in the country is gradually increasing. The debt-GDP ratio was 28.7 percent in 2014, which is now 42. 1 percent.
Professor of Economics Department of Dhaka University Salim Raihan said, “We have taken short-term loans as opposed to long-term loans for various projects. These have higher interest rates and are repaid within a short period of time. These have been taken from some countries including Russia, Japan on the basis of bilateral relations.
These loans have less monitoring than the World Bank or IMF. As a result, maybe the government is leaning towards it. Now if returns start coming from these projects, then the pressure will be manageable. Otherwise, the pressure will be too much. This will put further pressure on our foreign exchange and reserves.”
He said, “In my opinion these loans need to be reviewed. Its terms, projects are everything. The entire process should be reviewed. And such loans should be avoided in future.”
Former president of Bangladesh Economics Association and former teacher of Chittagong University Economics Department Moinul Islam said, “In the financial year 2024-25, the debt repayment amount of Bangladesh will exceed four billion dollars. As a result, Bangladesh will be under heavy debt repayment pressure from 2024-25 to 2029-30 financial year.”
He said, “This loan has been taken for big projects. There the implementation time has been extended. The amount of debt has increased. Loans have also been taken more. I think there is looting here. Big margins are taken by the executives from each project. As a result, this situation has arisen.”
He gave an example and said, “$12 billion Russian loan has been taken for Rooppur nuclear power project. Its production capacity is 2400 MW. However, a project of 2000 megawatts of power generation has been done in Tamil Nadu, India with six billion dollars. From here our point is understood. And Russia will also take more dollars away from us by showing higher costs.”

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