Govt repaying foreign debt by borrowing: CPD

Bangladesh has to borrow to repay a large portion of its public and publicly guaranteed (PPG) debt obligations amid insufficient revenue collections, said the Centre for Policy Dialogue (CPD).

“We are indeed borrowing to repay a large part of our public and publicly guaranteed debt obligations,” said Mustafizur Rahman, a distinguished fellow of the CPD, at an event styled “Bangladesh’s External Borrowings and Debt Servicing Scenario: Are There Reasons for Concern?”.

CPD, in partnership with The Asia Foundation, organised the dialogue at Dhaka’s Lakeshore Hotel.

“The external debt and debt servicing liabilities are growing, which is a concern and we have to be cautious now,” Rahman said.

At the end of June last year, Bangladesh’s external debt stood at $98.9 billion and over the next six months, it crossed the $100 billion mark.

Between fiscals 2010-11 and 2022-23, total external debt increased by three times, while debt servicing rose 2.6 times.

This fiscal year, Bangladesh is expected to borrow $10 billion from different sources, and in the first eight months, $7.2 billion was taken.

There are external and domestic factors for the growing debt and debt servicing, the CPD said.

The external factors are the adverse impact of the pandemic, negative fallouts of the Ukraine war and depressed global demand for goods and services.

The domestic factors are weak management of external debt and borrowings; borrowings that did not generate expected returns; unsustainable borrowings; low domestic resource mobilisation; currency fluctuation; unfavourable terms and conditionalities of lending; changed composition of borrowings and high exposure to sovereign bond market; borrowings at flexible interest rate; and financial market fluctuations.

Rahman went on to call for making accurate estimates of debt service obligations, strengthening good governance in implementation of the public infrastructure projects, exploring new sources of funds, diversifying sources of development finance and keeping private sector borrowing under vigilance.

He also suggested caution regarding flexible exchange rates and project selection and called for strengthening loan negotiation capacity.

Debapriya Bhattacharya, a distinguished fellow at the CPD, said, “If you want to understand the government’s liability situation, we have to consider the domestic loans alongside the foreign debt.

“The per capita debt is around $310 in terms of foreign debt, but if we take into account the domestic loans, it will stand at almost $850.”

Three years ago, the per capita debt stood at Tk 100,000; now it is Tk 150,000. About 28 percent of the government’s revenue went towards servicing domestic debt and 5.5 percent towards foreign debt.

Many people blame the pandemic, the Ukraine war and Israel’s war on Gaza for Bangladesh’s escalating debt situation, he said.

“I do not completely agree with them but slightly agree. Now the question is should we be concerned? Yes, we should be.”

People under the age of 20-25 will have to bear the highest burden of the government’s growing propensity to take on debt, Bhattacharya said.

The balance of project selection has been lost in Bangladesh, he said, adding that the cabinet sub-committee on economic affairs has turned into a procurement committee.

“Once professional bureaucrats kept the politicians under rule. Now, professional bureaucrats are playing a more exaggerated role than the politicians,” Bhattacharya added.

Bangladesh is in a better position than African countries and Sri Lanka in terms of debt repayment, said Rehman Sobhan, chairman of CPD.

“We should think more about how we will repay the foreign debt in the future, and how we will increase our export capacity. If exports increase, it will ease debt repayment.”

The project cost increases by 20-50 percent if it is funded by loans, Sobhan added.

“Production will have to increase in the country. At the same time, foreign debt is essential,” said Mashirur Rahman, economic affairs adviser to the prime minister.

There is a need for reforms in different sectors, including the banking sector, said Salehuddin Ahmed, a former governor of the Bangladesh Bank.

Monitoring on private sector external borrowing will have to increase, he said, adding that the export and remittance must increase to bring down the financial account deficit.