Bangladesh sees foreign debt buildup

Bangladesh sees foreign-debt buildup as the government opted for increased external borrowing largely to meet budget deficit and foreign-exchange needs amid lower incomes, sources say.    

Official statistics show the borrowing in terms of the US currency in the second quarter of the financial year 2022-23 grew over US$3.55 billion on average compared to the previous three months of the fiscal. 

Officials concerned said need for financing the deficit budget and coping with lower earnings from export and remittance necessitated escalating external borrowings.    

Meanwhile, the country’s debt liabilities are poised to be pushed up by some recent big loans from two major multilateral lenders—the International Monetary Fund (IMF) and the World Bank (WB).      

The borrowing by government rose over US$ 3.55 billion to US$ 96.25 billion in the October-December quarter of FY 2022-23 from US$ 92.69 billion in the previous quarter (July-September), according to latest figures available with Bangladesh Bank (BB). 

On a year-on-year basis, the debt rose by over 6.0 per cent as the size of overseas borrowings in Q2 of the previous fiscal (FY’22) was US$ 90.79 billion.

The share of private sector in the cross-border borrowings, however, dropped over US$ 1.0 billion while the borrowings by the government increased by US$ 4.65 billion to reach US$ 71.94 billion in the Q2 of this fiscal, according to the BB data.

In terms of composition of the entire external debts, the volume of long-term loans from multilateral, bilateral, supplier’s credit, IMF and other sources stood at US$77.72 billion at the end of December 2022 while the remaining portion came on short-term basis.

Seeking anonymity, a BB official said the public-sector drawdown from the external sources shot up around 7.0 per cent in the Q2 of the current FY, contributing to the uptrend in the foreign-debt situation.

On the other hand, private-sector players have become reluctant to go for full operations of their production units or expand their businesses under the current volatility in the macroeconomic situation locally and globally.

“That’s why the share of private sector in overseas debts keeps falling. Look at the private-sector credit situation here, it is also declining gradually,” the central banker added.          

According to the BB data, private-sector-credit growth plummeted to 12.03 per cent last March last—rated lowest in 12 months. 

Contacted for his view of the debt situation, Executive Director of the local think-tank Policy Research Institute (PRI) of Bangladesh Dr Ahsan H. Mansur said poor revenue earnings from the internal sources prompted the government to borrow from external sources to meet its financing requirements.

“I think the share of external borrowings will continue rising in the coming quarters as the country’s overall fiscal situation is not in a good shape because of lower revenue earnings,” he forecasts.

And if the government does not go for more borrowings from overseas sources, he says, it will need to print more money to meet the demand, which will further push up the inflation that the government does not want.

“Now, it is needed to do proper balancing by using the funds from the external sources. Otherwise, the country would face trouble after four-five years when the repayment will start,” the country’s eminent economist suggests.

According to official statistics, the government revenues earned from the NBR, non-NBR and non-tax-revenue sources fell short of the target in the first six months of this fiscal (FY’23). The overall revenue target is Tk 4.33 trillion for this fiscal, but until December 2022, it had earned around Tk 1.61 trillion—down by Tk 555 billion from the half-yearly revenue target.

Chairman of Research and Policy Integration for Development (RAPID) Dr Mohammad Abdur Razzaque says the government borrows more funds from cross-border sources to meet its financing requirements and lessen pressure on the falling forex reserves.

“It is justified and logical under the current macroeconomic context. The good part is we don’t need to repay immediately. But we need to properly utilise the credits to avert any stress in the medium term,” he opined on a note of caution.

The volume of external borrowings is set to be soaring further as the country already signed more loan agreements after the Q2 with the IMF (US$4.7 billion), the World Bank (US$2.25 billion) and the ADB (US$ 3.0 billion).

The IMF already released the first tranche of the loan amounting to US$ 476.2 million to Bangladesh in February last.

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