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Forex down, current-account balance negative

Debt discomfort may stare at Bangladesh too

CPD economist Debapriya says, cites big borrowing for megaprojects

| Updated: May 10, 2022 13:30:16

Debt discomfort may stare at Bangladesh too

Bangladesh too may get into "discomfort" with its foreign debt after the fiscal year 2024-25 particularly following big borrowings for megaprojects having little immediate returns, says CPD's Dr Debapriya Bhattacharya.

The distinguished fellow of the Centre for Policy Dialogue or CPD, however, wouldn't liken the country's position to crisis-ridden Sri Lanka's for now.

"Currently, Bangladesh's debt liabilities are on green line. But it will be on yellow line after the FY2025. It means the country is going to be in a discomfortable level," he said while speaking virtually Monday at a conversation with the media on 'Public Debt in Bangladesh'.

Dr Bhattacharya further said Bangladesh's debt, including government liabilities, is much higher than the estimated current debt.

According to the CPD's Distinguish Fellow, Bangladesh's debt is 44.10 per cent of GDP (Gross Domestic Product).

"The government usually estimates its total loan borrowed from the internal and external sources. But the private-sector external credits and other contingent liabilities are not considered in the sum. If we incorporate those liabilities into the public debt, Bangladesh's total debt-to-GDP ratio will be 44.1 per cent," the economist says.

Dr Debapriya said as per the base year 2004-05, the country's total debt, including public (domestic) + public (external) + private (external) + contingent liabilities stood at 44.10 per cent of GDP in FY2021.

According to International Monetary Fund (IMF) count, Bangladesh's total public- sector debt-to-GDP ratio was 34.7 per cent in FY2020, the lowest in the South Asian region with Sri Lanka's 112.2 per cent and Bhutan's 120.7 per cent.

Government estimation has shown total outstanding debt till last FY2021 in Bangladesh at $131.14 billion.

"The government is borrowing costly loan in recent years than the concessional loans in the previous. The costly loans have been increased both from the bilateral and multilateral lenders. Besides, the grace period of many big loans will end within next few years," he notes.

Dr Debapriya points out that the government is failing to utilise a US$50 billion worth of foreign assistance stuck in the pipeline.

The CPD fellow found the public-debt growth was outpacing the country's GDP- growth rate in recent years, which, he feels, may create higher debt liabilities for the country in the near future.

On a note of caution he says that government's domestic-debt liabilities are similarly important like the external debts. "It is being noticed that there is higher domestic-borrowing tendency in the government. In last three fiscal years, the government has taken higher amounts of loans from both local and external sources."

Analysing the borrowing tendency, the economist further said it was noticed that the government borrowing tendency was higher during the election period.

"It means the borrowing and the debt liabilities have a correlation with the national elections in the country," he added.

Public-sector borrowing data showed that total public debt was higher during the national election periods in 2009, 2014 and 2018.

"We have noticed some correlations between the public debt and national elections. It was found that the government had usually taken higher amounts of loans in the election year, or before the election year and after the election year."

When requested for an elaboration about the correlation, Dr Debapriya said: "If there remains weakness in democratic elections, then a government takes up some visible infrastructure projects to make people satisfied. In most of the cases, those projects may not give adequate return to the economy, and then the country falls into trap."

Besides, if there is lack of trust on the democracy of a country, it takes place higher money-laundering incidents, he added, citing examples of Sri Lanka.

"Bangladesh will not fall into the debt trap like Sri Lanka's with its present debt liabilities and economic fundamentals. It is not justified to compare Bangladesh with Sri Lank. But we have to take lesson from the island country."

He points out that many economists in Sri Lanka opposed government's decision on taking costly megaprojects taking huge foreign loans and issuing short-term bonds on the international market. "But the government had not considered the plea rather they branded some of the economists as anti-Sri Lankans. The island country is now facing the result."

The economist expressed his concern about the lower base of revenue income, saying that as most of the money is spent for public-administration operations and loan repayments, there will be very nominal investments from this internal income for development projects.

About the recent economic trends, he said the foreign-exchange reserves came down equivalent to the import bill of five months and the current-account balance fell into negative territory.

If the foreign debt-servicing liabilities keep increasing, the revenue generation is not boosted and the current-account balance remains in negative trajectory, what will be the fate of the economy in the near future is a matter of concern, he added.

The CPD distinguished fellow suggests that it is time the interest rate was raised and other monetary policies stabilised to avert possible vulnerabilities of the economy.

About the exchange rate of the local currency against the appreciating US dollar, he said, "Bangladesh is the weakest country in proper monitoring of the exchange rate."

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