Debt burden goes on: Debapriya

Staff Reporter :

Renowned economist Debapriya Bhattacharya has raised concerns about the role of global institutions, particularly the International Monetary Fund (IMF) and the World Bank (WB), in assessing Bangladesh’s debt sustainability under the previous government. With the country’s debt servicing obligations mounting, Bhattacharya questioned the effectiveness of these institutions.

“Where were they, the organisations responsible for oversight? I won’t name them, but they are known by their two- or three-letter abbreviations,” Bhattacharya, a distinguished fellow at the Centre for Policy Dialogue (CPD), remarked.

Speaking at a public lecture titled “Public Debt, Domestic and Foreign: How Much is Too Much?” at the Annual BIDS Conference on Development 2024 organised by the Bangladesh Institute of Development Studies (BIDS), he challenged the credibility of their oversight. “What were they monitoring? How did they verify the data submitted by the government? Or were they complicit in perpetuating the so-called development narrative?” he asked.

Bhattacharya called for accountability from government officials who had previously claimed the country was in a comfortable financial position. “We need to determine whether they misled the government or if they were coerced into presenting skewed assessments,” he stated.

Highlighting the complexity of debt data, Bhattacharya emphasised that the debt burden is now a critical issue, posing one of the nation’s biggest challenges. He noted that misleading figures, such as a fabricated debt-to-GDP ratio, were presented to sustain the government’s development narrative and justify additional foreign borrowing.

“Bangladesh is effectively a defaulter now, having failed to repay $6 billion, with debt servicing liabilities projected to rise by $1 billion annually,” Bhattacharya stated. He underscored the urgency for the government to reassess its borrowing capacity and initiate discussions with lenders, including renegotiating interest rates and grace periods.

Professor Mustafizur Rahman, also a distinguished fellow at the CPD, added that external debt and foreign exchange reserves should be considered together.

“Two years ago, our reserves were $48 billion, and external debt servicing was $2.3 billion. Now, reserves have dropped to $20 billion, while debt servicing has risen to $4 billion,” he explained.

Rahman noted that Bangladesh’s transition from a low-income to a lower-middle-income country has reduced its access to low-interest, concessional loans, forcing it to rely more on higher-interest borrowing with stricter terms.

This shift, coupled with the depreciation of the taka against the US dollar, has intensified debt repayment challenges, as revenues from large-scale projects are in local currency while loans are dollar-denominated.

Professor Syed Moinul Ahsan, an emeritus professor of economics at Concordia University in Canada, stressed the need to raise the tax-to-GDP ratio. “Without improved tax collection, Bangladesh will face significant hurdles in managing its debt obligations,” he warned.