Mahfuja Mukul: The domestic and foreign debt of the government is gradually increasing. At the same time, the debt servicing cost is increasing. According to the International Monetary Fund (IMF), the government spent more than $23.32 billion on debt repayment in the fiscal year 2022-23. According to the latest announced exchange rate (Tk 110.25 per dollar) in the interbank transaction, the amount in taka stands at Tk 2 lakh 57 thousand 158 crore. In this, the amount of foreign debt repayment has increased almost twice. In fiscal year 2022-23, the government’s foreign debt service expenditure exceeded $3.88 billion, which is more than Tk 42 thousand crore in taka terms.
The IMF board meeting last Tuesday (December 12) approved the second tranche of loan waiver for Bangladesh. Earlier, the IMF review mission visited Bangladesh from October 4 to 19. In Tuesday’s board meeting, the officials of the organization observed the overall economic situation of Bangladesh and presented their assessment before the board. A report was then released on Friday (December 15) on IMF officials’ assessment of Bangladesh, conditionality under the loan program and progress in implementing reforms. This report shows the debt and debt repayment of the Bangladesh government.
According to the IMF report, the government’s debt status at the end of the last financial year 2022-23 stood at $16,666 billion. During this time, $2,332.50 million million have been spent to repay the government’s debt. Out of this, the foreign debt repayment expenditure was $388.6 million. In the previous financial year (FY2021-22), this expenditure was $2,100 million.
In the financial year 2022-23, out of $388.6 million spent on repayment of foreign debt of the government, $367.6 million was spent on medium- and long-term debt. In this case, $205.80 million have been spent on repayment of loans from multilateral lenders and international donors. Out of this, $27 crores of IMF, $687 crores of World Bank, $938 crores of Asian Development Bank (ADB) and $162 crores of multilateral lenders have been spent on debt repayment.
The government has spent $882.2 million to repay the dollar debt to bilateral lenders. In the case of countries belonging to the Paris Club (United States, United Kingdom, Russia, Japan and Western large economies), the amount of this expenditure was $518 million. Of this, Japan and Russia’s debt repayment expenses were $14.5 million and $33 million, respectively. $36.4 million were spent on debt repayment of non-Paris Club countries. Out of this, the amount of expenditure in China and India was $25.10 million and $7 million respectively. In addition, $73.6 million were spent in the last financial year to repay the debts of state-owned enterprises. $21 crore was spent on short-term loans.
At the end of the fiscal year 2022-23, the government’s borrowing from local sources stood at $9,264,800,000. According to IMF data, the government spent $1,943,900,000 on debt and interest (domestic) payments on loans taken from local sources in the fiscal year 2022-23. In this case, $41.3 crore for treasury bills, $595.70 crore for treasury bonds, $8.50 crore for sukuk and $1,298.4 crore have been spent on debt repayment.
Economist and Policy Research Institute of Bangladesh (PRI) Executive Director Dr. Ahsan H. Mansoor told the media, ‘Government borrowing from local sources will increase in the current financial year, as interest rates on treasury bills are increasing rapidly and the government will have to pay them. Interest rates on foreign loans are also increasing and the amount of loans is also increasing. As a result, our debt repayment pressure will increase in the coming days.
According to the data of the Ministry of Finance, the debt of the government has increased by Tk 2 lakh 73 thousand 589 crores in the financial year 2022-23. During this period, loans taken from foreign sources increased more than local sources. The amount of debt that has increased is about 83 percent of the total revenue collected by the government in the last financial year. At this time, the government had to pay more than Tk 92 thousand crore interest against the loan.
In the financial year 2022-23, the revenue has been Tk 3 lakh 31 thousand 454 crores. During this period, the government had to pay interest of Tk 92,538 crore against the loan, which exceeded the budget allocation for this sector. Out of this, the government has paid interest of Tk 83,086 crores against local loans and Tk 9,452 crores against foreign loans. In the budget of the financial year 2022-23, there was an allocation of Tk 90,013 crores for interest payment.
According to the IMF report, in the financial year 2022-23, Bangladesh’s debt repayment expenditure to revenue income and grant ratio stood at 71.8 percent. As debt servicing costs increase in proportion to revenues, it becomes imperative to increase government revenue, so that much-needed funds can be spent on restoring pro-poor and green growth.
According to the IMF’s policy recommendations in the report, Bangladesh needs to increase tax revenue and rationalize expenditure, so as to increase spending on social and investment sectors.
Bangladesh has not been able to collect revenue as per IMF target in 2022-23 financial year. In this regard, the IMF says, Bangladesh could not meet the target of tax revenue collection due to import control as well as lower than expected income and consumption.
In a statement after approving the second tranche of concessions for Bangladesh, the agency said the government has taken several steps to address macroeconomic challenges. Overall, Bangladesh’s efforts have been satisfactory and most of the loan program targets and reform commitments have been met. However, to ensure good economic growth, it is necessary to deepen the capital market through the private sector.
When asked about the overall issue, the former chief economist of the Dhaka office of the World Bank Zahid Hossain told the media, “The IMF report has mentioned that the risk of Bangladesh’s debt crisis is low. In this case, the debt risk is said to be low considering the fact that our loan installments and interest payments are against the export earnings and remittance flow and the interest rate is low due to high easy terms loans. Here it is assumed that there will be sufficient liquidity flow of dollars in the future to pay off the loan with interest. But when there is a crisis of dollar availability as in our current situation the credit risk is low but the default risk is high.
Because in any case, even if there is a crisis, the debt must be paid in dollars. In this situation, the debt has to be paid without spending on other sectors including import control. It is wrong to assume that foreign debt as a proportion of GDP is not a problem. The dollar crisis is a big problem for us, along with low revenue. The debt will ultimately be repaid from government revenue and income from other sources. Interest on domestic and foreign loans currently stands at 20-25 percent of the government’s revenue. And if the currency depreciates, the cost of foreign debt increases. What is generally said is that we have a lower debt to GDP ratio than other countries.
Where it is acceptable below 55-60 percent, in our case it is closer to 40 percent. But this is applicable only when you have enough revenue income and dollars in hand. If there is a deficiency in any of these two, then the amount of the loan is less, but it becomes a burden. We are now in that situation.
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