Govt faces double whammy as debt duo surges
Muhid Hasan :
Bangladesh government faces double whammy as debt duo surged significantly since 2016.
Bangladesh has witnessed a significant rise in both its external and internal debts, with foreign borrowings doubling over the past eight years and domestic debt nearly doubling in the last five years.
According to recent Bangladesh Bank data, the country’s external debt stock surged to $97.01 billion by the end of September last year, up from $41.17 billion in the fiscal year 2016.
This escalation reflects a growing dependency on foreign loans for funding development projects, with foreign loans experiencing a sharp increase of 48.63 percent from $65.27 billion in June 2020 to $97.01 billion within three years.
The rapid increase in foreign debt has consequently raised Bangladesh’s per capita external debt to $579.28 (equivalent to Tk 63,048) in the last fiscal year, marking a 53 percent rise from $378.2 in fiscal year 2019.
Domestic public debt has also seen a significant jump, almost doubling to Tk 8.62 lakh crore at the end of the fiscal year 2022-23 from Tk 4.28 lakh crore in 2019.
Economists attribute this surge in borrowing to a lack of significant reforms in revenue enhancement and inefficient utilization of foreign loans, leading to increased government borrowing from domestic sources.
Despite these concerns, the government has continued to finance major development and health projects, including those during the COVID-19 period, through foreign loans. The private sector’s foreign loan uptake for investment has also been notable.
While Bangladesh’s foreign debt-to-GDP ratio remains within a manageable threshold of around 22 percent, concerns loom over the sustainability of external debt repayments amidst stagnant foreign currency earnings from exports, remittances, and foreign direct investment.
The effectiveness in utilizing borrowed funds and the government’s increasing interest payments have been highlighted as pressing issues by experts.
Zahid Hussain, a distinguished economist and former lead economist at the World Bank’s Dhaka office, remarked that although Bangladesh’s external debt level is not alarming compared to other countries, the rising debt is significantly increasing interest expenditures, thereby reducing the government’s fiscal space.
With the commencement of repayment periods for several major projects, Bangladesh faces increased budgetary pressure to manage external debt payments, which amounted to USD 2.68 billion in the previous fiscal year FY23.
Projections by the Finance Ministry indicate that the country is expected to pay USD 3.28 billion in interest and principal in the current fiscal year 2023-24, with payments anticipated to rise in the coming years.
