Govt liabilities from underwriting SOE loans rising

Government liabilities from underwriting loans taken by state-owned enterprises (SOEs) from domestic and international lenders are ballooning, coming to over Tk 1.19 trillion in a period beyond this June, official statistics show.

The total amount accounts for a 1.7-percent increase from the previous year's figure of Tk 1.17094 trillion, as shown in the new budget documents.

These guarantees and counter-guarantees are extended against loans negotiated by various state-owned financial and non-financial enterprises involved in implementing public policies and programmes.

The rise is significant as such guarantees carry fiscal risks. If any SOE fails to meet its loan obligations on time, the government must step in to fulfill the liability -- potentially burdening the national budget.

Amid persistent high inflation, the state-owned Trading Corporation of Bangladesh (TCB) expanded its operations across major cities to stabilise prices of essentials. As a result, government guarantees for its trading wing, TCB, surged more than 100 per cent, reaching Tk 48.96 billion.

These guarantees were provided to support the import of soybean oils, red lentils, sugar, onions, rice-bran oils and dates under the Loan Against Trust Receipt (LTR) scheme. TCB's subsidized open-market sale (OMS) operations also increased during the review period.

Power sector still tops in guarantee volume. The power sector continues to account for the largest portion of government guarantees, with 18 projects covered. However, its liabilities marginally decreased to Tk 530.71 billion beyond June 2025.

Biman Bangladesh Airlines saw its guaranteed liabilities rise significantly to Tk 77.45 billion for its 17 projects, reflecting growing capital requirements, especially in the losing aviation sector.

Bangladesh Sugar and Food Industries Corporation (BSFIC) is also on the list of entities feeding on state guarantees, with its sugar business sinking in ebb tide. It secured over Tk 11.17 billion in working capital to operate three state-run sugar mills.

These mills are supposed to intervene in the domestic sugar market when private refiners raise prices excessively.

While intended to ensure price stability, the availability of subsidised sugar from government mills during crisis periods has been questioned.

Long queues are often seen at BSFIC's Dilkusha headquarters in Dhaka, where people seek to purchase sugar at comparatively lower prices that are also not so low in retailing groceries.

Bangladesh Jute Mills Corporation (BJMC) retained two working-capital loans amounting to Tk 900 million -- unchanged from the previous year. These loans, used to run its jute mills, were sourced from Sonali Bank PLC and Janata Bank PLC.

Apart from local banks, government-guaranteed loans are also extended by international lenders like EXIM Bank of China, Bank of China, ICBC, Japan Bank for International Cooperation (JBIC), and Singapore's Sumitomo Mitsui Banking Corporation (SMBC), among others.

With the rising exposure to guaranteed loans, many economists suggest that regular monitoring and risk assessment of SOE performances are "crucial to minimizing fiscal shocks and ensuring the sustainability of public finance as there are many examples where the government paid the loans".

jasimharoon@yahoo.com