Vicious cycle of debt Govt borrows to repay loan: CPD
Staff Reporter :
Centre for policy Dialogue (CPD) has stated that the government is resorting to borrowings anew in a bid to repay the existing loans as the revenue collection is inadequate.
“The government’s debt and repayment obligation are escalating. The government’s revenue collection is inadequate. Amid this situation, the government is borrowing anew to pay the loans.
It’s not pandemic or Ukraine war, the government’s tendency to borrow loans for other reasons,” CPD’s Distinguished Fellow Mostafizur Rahman said.
He made the remarks while presenting a paper on ‘Bangladesh External Borrowings and Debt Repayment Capacity’ organised by CPD, in partnership with the Asia Foundation, held in a city hotel on Thursday.
Prime Minister’s Economic Adviser Dr Mashiur Rahman was present as the Chief Guest on the occasion.
“We are indeed borrowing to repay a large part of our publicly guaranteed debt obligations.
Therefore, there is no alternative to rapidly increase domestic resource mobilisation,” said Mustafizur Rahman.
Observing the current debt situation, he said, “In the current years, the rate of the compulsory borrowing of external loans and repayment has intensified.
In June 2023, the borrowings of public and private loans of Bangladesh were $ 98.6 billion, which has now stood at $100 billion in September the same year.”
Comparing the external borrowings and GDP ratio, he said, “The current external debt-to-GDP ratio of 21.6 per cent is not high comparatively. But the capacity to repay debt is more significant.”
The CPD said that the composition of debt portfolio is rapidly changing. The proportion of concessional loans is decreasing, while the share of non-concessional and market based borrowings is increasing. The loan terms are also being stringent.
Expressing concerns, the CPD Fellow said, “The external borrowings and loan repayment obligation are increasing when it is compared with the GDP, revenue collection, exports, remittance and foreign reserves.”
“The debt carrying capacity and debt repayment strength have raised concerns.
At the end of the day, the domestic resource mobilisation is important and it has to be considered in the context of both domestic and external borrowings,” he said.
He further said that an increasing portion of domestic resources is being used to repay the principal and interest of domestic and external loans.
Talking over the debt issue, CPD Distinguished Fellow Dr Debapriya Bhattacharya said, “The debt issue has come to the discussion in the last two weeks. The attitude of denial by the policymakers has become evident again.”
“The policymakers often make sardonic remarks about the economists that they cannot analyse properly and cannot predict as well.
Two years ago, I said that the year 2024 would be difficult. Country’s economy may face severe blow in the context of repayment.
Uneasiness to pay loans would begin from 2025. It will deepen in 2026. There is negligence in the context of loan,” he articulated.
He further said if the per capita debt is $310 for external debt, it will be now $850 by adding internal loans.
“The capacity for loan repayment has reached to such a point that it has become difficult to finance the development projects from the revenue budget. We are now in an elusive reality,” Debapriya Bhattacharya said.
CPD Chairman Prof Rehman Sobhan said that Sri Lanka fell in a short term debt trap while Bangladesh is also facing such debts.
“The mega-projects have been constructed with the external loans. 20-50 per cent additional expenditure has been witnessed in these projects,” he said.
“Sri Lanka fell into the short term debt trap. The country could not pay the loans due to export shrinking.
Such situation has been created in some African countries. Bangladesh is not in such a condition. But the amount of short term loan is increasing,” he said.