Foreign debt interest payment pressure mounting on budget

Syed Nasir Hossain: At present, the country’s economy has a foreign debt pressure of Tk 11.5 lakh crores. There is a provision of repaying this loan with interest at the end of the specified period.
A part of this loan is now being paid by the government in interest every month. However, due to the fact that there is a fixed time commitment in foreign loans, as the days pass, the pressure of the government to repay these loans is increasing.
In the last 9 months of the current financial year (2023-24), a total of Tk 28 thousand 281 crores 45 lakhs of foreign loans have to be paid in total. Of this, the original Tk 16 thousand 679 crore 62 lakh.
The remaining Tk 11 thousand 601 crore 83 lakh has to be paid as interest.
However, in the budget of the current financial year, the government has set a target of payment of Tk 24,700 crores of foreign debt and Tk 12,376 crores of interest.
This means, the remaining expenditure of the current fiscal year is not being met with the allocation money kept in the external debt liability sector in the budget.
According to the concerned responsible sources, due to this, the government has increased the allocation to the foreign debt interest payment sector in the revised budget of the current financial year to Tk 15,800 crore. In the initial budget of the current financial year, Tk 12,376 crores were allocated for foreign loans. In other words, Tk 3,424 crore have been allocated in the revised budget. (See Page-11)

Economic analysts say that generally in welfare developing countries like Bangladesh, all governments have public promises. Due to this, the demand for development is also high. Especially in this reality, the main feature of the political government in such countries is to try to develop more with less income. As a result, the government borrows from various foreign sources outside the domestic sector to meet the deficit of the budget that it is preparing every year to match the income with the additional expenditure to meet the development needs. This is the accumulated size of the debt burden that the government is now shouldering in the country. Whose loan now has to be paid with interest every month. However, the interest on foreign loans is relatively low and the repayment grace period is also long. Because of this, the government is leaning towards foreign debt.
In the same period of the last financial year 2022-23, it spent Tk 16 thousand 965 crore 66 lakh in repayment of foreign debt. Of this, the original was Tk 12 thousand 202 crore 16 lakh. And the interest had to be paid Tk 4 thousand 763 crore 50 lakh. In other words, in the financial year 2022-23 where Tk 4 thousand 763 crores 50 lakhs of interest had to be paid, the interest has to be paid till March of the current financial year, which is almost 2.5 times.
When asked about the reason for this additional allocation in the foreign debt liability sector in the revised budget, the responsible officials of the Ministry of Finance said that almost 45 percent of the foreign debt was taken in SDR (Special Drawing Rights) currency, which has to be paid usually in US dollars or UK pounds sterling; But recently, due to global instability, the exchange rate of the SDR currency against the dollar and the pound, the exchange rate of the dollar against the taka, and the Eurobar and SOFAR rates have increased a lot. As a result, foreign loans and interest payments on loans have also increased compared to earlier.
That is, due to the devaluation of the taka against the dollar and the pound, the same amount of foreign debt is costing up to 30 percent more than before. This additional expenditure has now become the cause of great pressure on the government in budget management. Apart from that, several mega projects have been implemented in the country in recent years and some are under implementation. As the grace period of which is over, the repayment of its financed loan installments has already started. Due to this, the pressure of payment of installments of foreign debt on the shoulders of the new and old government has also increased compared to before. In this reality, in the budget amendment, the allocation of interest payment for this sector has been increased.
Meanwhile, the debt of this foreign source is supposed to be paid from the government’s own income. But in the domestic reality, the government’s income is low. Again, the area of increasing income is less. The only hope is the revenue sector. The desired income is not coming from there due to various reasons. That is why the government is trying to repay the debt by paying part of it from its own income and borrowing the rest.
If you want to know about this, the executive director of the private financial research institute Policy Research Institute Ahsan H Mansoor said, the problem is that the government is not able to increase the income from internal sources. Again, a large part of the income is spent on subsidies. Again, the reform work to increase the revenue income is not able to increase its speed. In fact, the foreign loan that is coming in may have paid off the foreign loan interest due to the slow pace of project implementation.
However, as the size of the foreign debt will increase, the interest payment will also have to be spent on a large scale. Out of this, the government should enrich the government’s exchequer by raising the revenue subsidy given to various sectors in the budget. This will at least save the huge amount of interest dollars being paid every year.