Fiscal Pressure Grows for Debt Accumulation

Bangladesh’s foreign loans top $65bn, debt service up

| Update:
April 02, 2022 07:08:32

Bangladesh’s total external debts snowballed to some $65 billion in February, expanding the service’s liability to external lenders, officials said, increasing pressures on the national budget.

In external debts, the outstanding general government loan is $56.62 billion while the outstanding public enterprise (SoE) loan was about $8.5 billion, according to the latest statistics from the Division. Economic Relations (ERD).

The EF, in an analysis, finds that the per capita foreign debt of Bangladeshis stood at around $387 till February of this fiscal year.

And loan accumulation has grown at a higher rate in recent years, as many repayment schedules had already begun.

Economists say that although Bangladesh is still in a comfortable zone, its growing external debt stock with increasing long-term lending could create pressure on fiscal management in the future.

They point out that after graduating as a developing country in 2026, Bangladesh will no longer get concessional loans from foreign development partners, which would put pressure on the national budget for repayment obligation.

The government of Bangladesh generally borrows medium and long term loans (MLT) from foreign development partners to develop the infrastructure and socio-economic condition of the country.

In addition, some state-owned enterprises and limited companies including Bangladesh Biman, Shipping Corporation, BCIC, Bangladesh Telecom-munication Regulatory Commission (BTRC), Bang-ladesh Petroleum Corpora-tion, Power Division and its agencies, Telecom-munications Authority, borrow from short term. medium-term loans to finance their development and operating work.

Government MLT and SoE loans are treated as government external debt.

The FE analysis finds that external debt has increased, year on year, in recent years, with government borrowing growing at a higher rate.

Five years ago, in fiscal year 2017, the government’s total external debt was $32.07 billion, which rose to $38.23 billion in fiscal year 2018, an increase 19% year-on-year, according to ERD data.

In the following fiscal year 2019, the over-indebtedness increased to $44.48 billion, an increase of 16.35% over the amount of the previous year.

Debt increased 14.95% to $51.13 billion in fiscal 2020 and 17.64% to $60.15 billion in the latest fiscal year 2021.

Through February of FY2022, external debt stood at $64.91 billion, according to ERD data.

Meanwhile, debt service relative to outstanding external loans is swelling at a higher rate, according to government data.

The government has repaid $1.34 billion in the first eight months of the current fiscal year 2021-2022 on its outstanding loans, 12.44% more than the corresponding period, according to ERD data. .

During the same period (July-February) of last fiscal year 2021, the government had repaid $1.18 billion of debt – principal and interest combined – against outstanding foreign MLT loans.

“Debt service on outstanding loans will increase in the coming days as the grace periods for many large loans will be over. external debt,” said a senior ERD official.

He predicts that debt servicing would get another boost after four years, when interest payments as well as principal amount to Russia for its $12 billion in loans will begin.

According to the ERD, the government has paid a total amount of US$1.91 billion against external debts to development partners in the last fiscal year 2021.

In the previous fiscal year 2020, Bangladesh served $1.73 billion against its MLTs, followed by $1.59 billion in fiscal year 2019 and $1.41 billion in the last one. fiscal year 2018, according to the ERD.

Another DRE official said net aid inflows may come under contractionary pressure in the coming days as repayment of most large loans, especially megaprojects, will begin in the next 2-5 years.

Center for Policy Dialogue (CPD) research director Dr KG Moazzem told the EF that Bangladesh’s borrowing is still at a comfortable level in terms of GDP.

“But the question is whether the government is able to use foreign loans appropriately or to get the highest returns,” he adds.

In most cases, foreign loans that are invested for the development of large projects do not obtain better results, notes the policy researcher.

It suggests better use of borrowed money to get better results from investments that would reduce the debt burden on the national budget.

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