Bangladesh needs to be cautious for unforeseen future shocks over debt distress

Loan repayment with capital and interest has become a rising concern for developing countries in recent times. The havoc caused by Covid-19 over the past three years, and global economic instability due to the ongoing Russia-Ukraine war. This concern has been echoed in the case of Bangladesh too as the volume of loan repayment will double within the next three years. Economists say loans taken from Russia, China and India with tough conditions will cause more headaches and loan agreements of over Tk 3.5 trillion (Tk 350,000 crore) have so far been signed with these three countries.

Usually, loans taken from World Bank, Asian Development Bank, Japan and various countries and donor agencies have a repayment period of 30-40 years. On the other hand, loans taken from China, Russia and India have half of this repayment period, though the interest rate is almost the same. Media reports said various infrastructures, including Rooppur Nuclear Power Plant, Karnaphuli river tunnel in Chattogram, Shahjalal fertiliser factory and Dasherkandi Sewage Treatment Plant are being constructed on the loans from these three countries. Loan repayment of most of these projects will begin after their grace period ends in the next two to three years.

Economists have suggested taking lessons from the mismanagement of Sri Lanka. However, they said there is no fear of a big crisis for Bangladesh at this moment, but the country needs to be more careful over its monetary and project management. There is no place for complacency. Bangladesh needs to be cautious about its debt repayment. The country’s momentary management will have to be fixed right now so that no additional pressure will arise all of sudden for the repayment of debts. As well, the existing foreign currency reserve management must be fixed too.

Meanwhile, Bangladesh is looking for a multi-billion dollar loan from the donor agencies to deal with the balance of payment crisis and boost the foreign exchange reserve. The country is now seeking a $4.5 billion loan from the International Monetary Fund (IMF), $1.0 billion from Asian Development Bank (ADB) and $750 million from World Bank (WB) as its economy faces a crisis marked by a mounting balance of payments deficit and dwindling foreign currency reserves.

Then again, we want the country to be cautious so that unforeseen future shocks do not create any debt distress.