Monday 29, May 2023

Sovereign debt soars to $94.5 billion

Time Digital News: Total external debt of Bangladesh soared by about $13 billion to cross $94.5 billion at the end of June 2022, compared to the previous year, indicating an increasing dependence on foreign loans for its development activities.

According to the Bangladesh Bank data, the country’s total debt from foreign sources stood at $81.57 billion in the financial year 2020–21, up from $45.81 billion in 2016–17.

The figure hit $94.503 billion, to be precise, at the end of June from $93.23 billion from the beginning of April in FY22.

The debt in Bangladeshi currency stands at more than 9,07,229 crores at the rate of $1=Tk 96.

Usually, a country receives foreign loans from multilateral lending institutions, including the World Bank, the International Monetary Fund, the Islamic Development Bank, the Asian Development Bank, and large overseas commercial banks and institutions.

Economists viewed that the rise in external liabilities, comprising principal and interest amounts, would eat up a major portion of the country’s income.

The loans should, therefore, be used in beneficial projects to avert a Sri Lanka-like situation as that country invested major portions of its debts in less viable projects, they observed.

According to the central bank data, the amount of loans taken by the Bangladesh government from foreign sources from the beginning of April to the end of June this year was $68.55 billion.

Of the amount, about $56.54 billion was directly borrowed by the government and the amount is long-term loans.

The remaining 12 billion dollars was borrowed by various government institutions.

The amount of loans received by the country’s private sector from foreign sources increased to $25.95 billion at the end of June from $24.98 billion at the beginning of April.

The country’s foreign debt has more than doubled in just six years.

Experts fear that the jump in external debt volume in a short period could be a threat for the country.

The country has been struggling with the depreciation of the local currency against the dollar, with the debt burden worsening due to the dollar appreciation, they noted.

Therefore, they predicted, the government as well as the private sector would be under pressure in repaying the foreign debts.

Anu Muhammad, professor of economics at Jahangirnagar University, told on Thursday that the government had undertaken various expensive projects which were mostly dependent on foreign loans.

‘These projects often serve the interests of businesses on both sides rather than the country,’ he said.

Therefore, he said, the unnecessary debt burden falls on the shoulder of the people.

If the loans can be used properly, they would deliver productivity and could be useful for the country, he added.

The government, therefore, must stop taking up unnecessary projects in order to avoid corruption and an undesirable economic situation in the coming days, he further said.

Centre for Policy Dialogue distinguished fellow Mustafizur Rahman on Thursday told that the country’s external debt was still at manageable level.

However, as the amount of debt has been rising dramatically in recent times the government must be cautious in taking and using foreign loans so that the investments provide good returns, he cautioned.

It should examine the lenders, the terms and conditions of loans and the debt servicing modes before approving such loans for development activities, he said.

Mustafizur also said that as the country was going to graduate to the developing country status from the least developing bloc it would cease to get low-cost loans, which would raise the interest payment volume.

Ahsan H Mansur, executive director, Policy Research Institute of Bangladesh, said that the government should remain cautious over the substantial rise in the external debt volume.

He viewed that the government must put increased emphasis on domestic revenue mobilisation to finance its budget deficits rather than take massive loans from foreign sources.

The amount of foreign loans received by the private sector, too, has been increasing day by day, which could also turn out to be a cause for concern for the government as a failure in paying such loans by the private organisations could be a reputational risk for the country, Mansur observed.

Besides, default by private entities to repay debt would impact the country’s sovereign rating, he said.

The government should, therefore, also strengthen its monitoring of private companies receiving foreign loans, he viewed.

The approaching maturity of a number of large foreign loans, with their grace periods ending soon, will almost double the volume of the country’s external debt repayment at $4.02 billion in FY25 against $2.4 billion in FY22, according to the Economic Relations Division.

The ERD has calculated the external debt repayment projection for the next three financial years as part of its budget preparation process.

The ERD has figured out that the overall debt repayment would stand at $2.7 billion in FY23, of which $1.9 billion would be principal and the rest interest.

In FY24, the overall repayment volume would be some $3.28 billion, with $2.3 billion in principal and $980 million in interest.

The country will have to pay back the first instalment on the Chinese credit in April 2023 as the five-year grace period ends in next year.

The 1,320MW Payra coal-fired thermal power plant project in Patuakhali is also being implemented with a non-concessional loan about $2 billion from the Exim Bank of China.

Payra power plant project director Shah Abdul Moula said that they would have to pay about $200 million in debt servicing in FY23.

Meanwhile, the imbalance in foreign trade has created an unstable situation on the country’s currency market.

In July 2021, the exchange rate per dollar in the country was Tk 84.80.

The interbank dollar rate increased to Tk 101.9 on September 14 after the central bank allowed the rate to be floating.

The country’s foreign exchange reserve dropped to $37.13 billion on September 12 after reaching a record high of $48.06 billion in August 2021.

The country’s trade deficit hit record $33.24 billion in FY22 against $23.78 billion in FY21.

The imports of goods stood at $82.49 billion in FY22 against $60.68 billion in FY21.


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