Foreign debt become double in 8 years

Per capita debt stood at Tk 63,000

Rabiul Haque : Bangladesh’s foreign debt is increasing day by day. This debt has more than doubled in eight years. According to the data of Bangladesh Bank, at the end of last September, foreign loans taken by the public and private sectors stood at $9,655 million, which was $4,117 million in the 2015-16 financial year. As of last June, per capita foreign debt stood at $574 dollars (about Tk 63 thousand). Eight years ago, it was just over $257.
The government has implemented and continues to implement major development projects with foreign loans. Foreign loans have been taken to implement immunization and other programs during the Corona period. Besides, the private sector has also taken foreign loans for investment.
Economists say that Bangladesh’s foreign debt as a proportion of gross domestic product (GDP) is still at a tolerable level. This rate is about 22 percent. However, if export income, expatriate income and foreign investment, i.e. supply of foreign exchange, does not increase, debt repayment may become difficult. The concern is that the supply of foreign currency is not increasing in line with the credit.
Economists have also warned of tougher terms on loans. They say that if the loan is taken with tough conditions and high interest, it can create crisis in the economy. In that case, the ratio of debt to GDP is not a big issue. For example, Japan’s foreign debt to GDP ratio is 104 percent. But the country is not under much economic pressure. In contrast, Pakistan’s foreign debt is slightly less than 35 percent of GDP; But the country is in debt repayment crisis.
Zahid Hossain, the former chief economist of World Bank’s Dhaka office, said that Bangladesh’s foreign debt as a proportion of GDP is at a fairly acceptable level compared to other economies of the same level. In this situation, there is less risk of the economy suffering due to foreign debt. But complacency is not right.
Zahid Hossain said, if the supply of dollars is not right and if expensive bilateral loans continue to be taken without improving project management, these loans may cause distress in the future.
The government borrows most of its foreign debt from organizations such as the World Bank and the Asian Development Bank (ADB) and from countries such as Japan, China, Russia and India. All these loans are taken mainly as project implementation and budget support.
Debt situation of Bangladesh
Bangladesh Bank’s website has the country’s foreign debt situation and other related statistics. There are two accounts. A Foreign Debt Account at the end of June. The other is the account of the end of September. However, there is no detailed explanation of the September calculation. As of June, the bulk of external debt (77 percent) is to the public sector. The rest (23 percent) belongs to the private sector.
Various private sector institutions take loans from various foreign banks and multilateral organizations to make investments. Private institutions have taken maximum loans in medium and long term in power and energy sector, manufacturing sector, trade, construction etc. Repayment of foreign debt, whether public or private, puts pressure on the country’s economy.
According to the data of Bangladesh Bank, $3,923 million have been taken from various multilateral organizations out of the total foreign loans. About $2,578 million have been taken bilaterally from any country. The amount of commercial loans stood at $1,185 million. 83 percent of Bangladesh’s foreign debt is long-term. The rest is short term. Short-term debt in the public sector is low. More in the private sector.
External debt of the public sector includes the debt of the government itself, the central bank, state-owned commercial banks and government agencies. The amount of debt of government agencies stands at $705 million. In some cases these loans taken at high rates of interest and tough conditions are increasing the price of goods and services provided by government agencies. People are under pressure. For example, Dhaka WASA has taken foreign loans of more than Tk 21 thousand crore for seven projects. The company is increasing the price of water to pay the interest and principal of these loans.
According to the Finance Ministry’s projection, debt repayment will continue to increase in the coming years. By the fiscal year 2029-30, it will stand at $515 million. After that, the loan repayment will continue to decrease.
Why debt increased?
The government borrows most of its foreign debt from organizations such as the World Bank and the Asian Development Bank (ADB) and from countries such as Japan, China, Russia and India. All these loans are taken mainly as project implementation and budget support.
According to the Economic Relations Department (ERD) last December, the World Bank, Japan, ADB and China were among the top lending countries and institutions in the fiscal year 2022-23. Chinese debt has grown significantly in recent times.
The government is implementing several big projects with foreign funding. These include Rooppur Nuclear Power Plant, Padma Bridge Rail Link Project, Metrorail (Line-6), Hazrat Shahjalal International Airport Third Terminal, Karnaphuli Tunnel, Matarbari Coal Power Station, Chittagong-Cox’s Bazar Railway etc. There are questions about the terms of some project loans and their usefulness.
The government has started trying to rein in foreign debt, especially bilateral debt. ERD said that they have increased the verification process for taking bilateral loans. Compared to last June, foreign debt decreased slightly in September.
No official statement from ERD was received yesterday on the matter. However, a responsible officer of the department told Prothom Alo on condition of anonymity that Bangladesh Bank accounts for all types of foreign loans. And with ERD’s accounting project support. As a result, the two accounts will not match.
Debt repayment pressure increasing
As the debt increases, the interest payment pressure also increases. A large allocation has to be kept in the budget for debt repayment. In the budget of the financial year 2023-24, an allocation of Tk 12,376 crore has been kept for payment of interest on foreign loans. In the revised budget of the previous financial year, this allocation was Tk 9,322 crores.
According to the Finance Ministry’s projection, debt repayment will continue to increase in the coming years. By the fiscal year 2029-30, it will stand at $515 million. After that, the loan repayment will continue to decrease.
Although foreign debt and debt repayment pressure has increased, exports, expatriate income and foreign investment are not increasing. An eight-year statistical analysis shows that during this period the debt has increased by about 135 percent (as on September). But export income increased by 62%, expatriate income by 60% and foreign investment by 60%. In these three sectors, the foreign exchange reserves of Bangladesh Bank have decreased without increasing the ratio of income to loans.
According to Bangladesh Bank, the ratio of foreign currency reserves to foreign loans in 2015-16 was about 74 percent. In the last financial year, it has come down to 25 percent. In 2021, Bangladesh’s reserves were $4,800 billion, which is now $2,524 billion (less than $2,000 billion according to the IMF formula).
Currently, the country has a current account surplus, but there is a large deficit in terms of finances. According to the data of Bangladesh Bank, the financial deficit was 5.23 billion dollars at the end of last December. And at the end of January, the financial deficit has increased to $735 million. One of the reasons for this deficit is the increased pressure to repay foreign debt.