Bangladesh sees debt buildup over Tk 14.48 trillion

Bangladesh sees ballooning debt buildup to Tk 14.48 trillion end of March largely for the compounding of borrowings with repayment liabilities, prompting economists to suggest mobilisation of multilateral funds.

According to a latest publication of the Ministry of Finance the amount of debts had increased over 6.0 per cent till March of the past fiscal year (FY 2023) over December 2022.

The total debt up to December 2022 was Tk 13.60 trillion, says the report prepared by the finance division and released this week.

The total debt-to-GDP ratio stood at 32.55 per cent at the end of March 2022-23 or up by nearly 2.0-percentage points from the second quarter or December 2022 period, the report has mentioned.

The domestic debt-GDP ratio stood at 20.57 per cent or up by nearly 1.2- percentage points while external debt-to-GDP stood at 12.01 per cent or up by 0.87-percentage points at the end of March.

Of the total, the domestic debt stood at Tk 9.2 trillion. Debts from the banking source stood at Tk 4.9 trillion, non-banking source at Tk 4.2 trillion and the external sources at Tk 5.3 trillion, the report shows.

"The total debt-to-GDP ratio was at around 32.55 per cent based on GDP projection for FY23 by BBS and is significantly lower than the IMF threshold of 55 per cent," says the report.

The statistics are based on provisional GDP estimates for FY 2023, measured by the BBS or Bangladesh Bureau of Statistics, at Tk 44.5 trillion.

It also reads the gap between the debts from the banking source and from the non-banking source has decreased.

Domestic debt constitutes the major share of the total debt stock, and financing from domestic sources is increasing gradually, it says.

"As on 31 March 2023, domestic and external debts were 63 per cent and 37 per cent of the total debt stock, respectively," the report says.

Economists say the debt buildup may have surged due to poor revenue mobilisation.

During 11 months of the last fiscal year, the total resource mobilisation was recorded at Tk 2.82 trillion. The annual target was Tk 3.7 trillion for FY 2023.

But they note that the government borrowing mainly came from printing money instead of the banking system.

Dr Ahsan H. Mansur, executive director of the Policy Research Institute of Bangladesh or PRI, told the FE that a big reason behind the domestic borrowing is less-than-expected grants from foreign sources.

The government received huge foreign aid as budgetary support from external sources on grounds of the covid-19 pandemic.

Dr Mansur says it has increased in the debts as the nominal depreciation contributes to an increase in external-debt burden. "Depreciation is a key reason for spiking external debt."

Bangladesh's forex market remained volatile for nearly a year, leading to the depreciation of the local currency.

"If the share of bilateral debt keeps rising, as generally presumed to be the case in recent years, external debt management could become concerning in the not-too-distant future," Dr Zahid Hussain, former lead economist at the World Bank Dhaka office, told the FE, on a note of caution

He thinks at present domestic debt management is more of a challenge than external debt management.

Dr M. Masrur Reaz, chairman of the Policy Exchange of Bangladesh, another local think-tank, stresses the need for publication of a full and transparent picture of external debts.

He mentions that there are many external debt data relating to bilateral debts with a particular country accounting for much of the buildup recently. "The full and transparent data on external debt need to be published," he told the FE.

Dr Masrur said Bangladesh should prefer multilateral external debt instead of bilateral debt as the former usually becomes of longer tenure and concessionary.

The Ministry of Finance began the practice of preparing the data on the International Monetary Fund (IMF) prescription in April 2021.

jasimharoon@yahoo.com