Bangladesh’s foreign debt rises to $82.85b

Economists say the fall in the private-sector component of the total debt and increase in the public debt amid decrease in foreign-exchange reserves, and export and remittance inflow, and increasing repayment could put the country into trouble in the medium term.
The repayment of the foreign debt has been on the rise year on year.  The government had to spend  $2.94 billion on debt servicing in the last fiscal year, 2021-22, in a rise from $2.62 billion in the previous fiscal for MLTs and other short-term loans of public entities.

They forewarn that if the global economic problem and Bangladesh’s dollar crisis lingered, Bangladesh would get in trouble in the near future with its repayment to the foreign lenders recurrently growing.

The foreign debt of the public sector (government) in the Q3 (July-March) of the outgoing fiscal had grown by $5.25 billion from last fiscal’s total at $63.52 billion, Economic Relations Division (ERD) provisional statistics showed.

Meanwhile, the private-sector debt as of March this fiscal decreased to $14.08 billion from $16.42 billion in the last calendar year, 2022, as per Bangladesh Bank (BB) data.

Out of the government’s $68.76 billion debt till last March, its outstanding medium- to long-term loans (MLTs) were recorded at $61.32 billion and the guaranteed debt was $7.92 billion, the official statistics showed.

An FE analysis has found that the private-sector credits taken from overseas lenders had started jumping since the calendar year 2021 due to higher borrowing by the country’s private-sector entities.

In the analysis it was found that the private sector’s outstanding debt swelled to $15.46 billion in the calendar year 2021 from $9.13 billion in the previous year, 2020.

Subsequently, the private debt had shown a rise as the figure was recorded at $16.42 billion in 2022. Then came a downturn—falling to $14.08 billion at the end of March 2023, the BB data showed.

Former World Bank’s lead economist Dr Zahid Hussain finds downstream risks of less foreign-fund flow into private sector, like economic contraction with its domino effect.

He notes that at a time when Bangladesh needs more foreign exchange, the private-sector credit is decreasing. “It means private-sector investments and production will be dropping and thus export will be affected. Then Bangladesh’s foreign- exchange reserves will further be under pressure and the repayments might be affected,” he told the FE.

On the other hand, the public- sector debt is increasing amid the failure of their utilisation and project implementation, resulting in a ballooning trend in the foreign-aid pipeline, he added.

“If we fail to utilise the project aid, our private-sector investment and production will ultimately be affected and once we may fail to repay those loans in time,” Dr Hussain says on a note of caution.

The former WB economist thinks the deferred payment against LCs, financial-sector instability, and drop in Bangladesh’s sovereign credit ratings have affected the inflow of private-sector loan from the overseas market.

Meanwhile, the government borrowing has been growing year on year as it finds out higher funds from the budgetary support to improve the foreign-exchange-reserve situation and from project aid for implementing larger and megaprojects.

Till previous FY2021, the public debts, including MLTs and the guaranteed ones, had been recorded at $60.15 billion, the ERD data showed.

The government debt rose to $63.52 billion at the end of last FY2022, and $68.76 billion till March this FY2023, the ERD provisional data showed.

A senior ERD official says the outstanding foreign loan will rise at the end of this FY2023 as three other budgetary supports worth some $1.0 billion might add up to the total debt of the government.

The Asian Development Bank (ADB) has recently disbursed $400 million worth of budgetary support while the Asian Infrastructure Investment Bank (AIIB) has confirmed another $400 million for funding budget deficit.

“The government is also waiting for signing on another nearly $250 million worth of budget-support credit with Japan within this month of June,” the ERD official adds.

Dr Zahid Hussain says the government’s foreign debt from the bilateral sector, including supplier credit, buyer credit, and other short-term loans could be problem for Bangladesh in the medium term.

The government should utilise the foreign loans to its best for getting the maximum returns which will cushion  the overall debt burden, he told the FE.

The foreign debt is likely to increase further in the next FY, 2023-24, as the government has set a higher Tk 2.62-trillion borrowing target for financing massive deficit national budget.

In the proposed national budget, the government has set a target to borrow Tk1.02 trillion ($9.50 billion) from the external sources.

The World Bank, ADB, Japan, AIIB, China and India are the major lenders to Bangladesh as the government usually borrows some $8.0 billion to $10 billion worth of funds from these financiers.

Source: The Financial Express

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Iram Hoque

Mohd. Iramul Hoque (Iram) completed his bachelor’s degree in Industrial Engineering in 2018 from Purdue University.

He joined Deloitte Consulting LLP as a Consulting Analyst based out of New York City having previously worked in similar roles at PricewaterhouseCoopers LLP & Landis+Gyr.

Iram left consulting and returned to Bangladesh to take up the family business. Realizing the opportunity in the capital market in Bangladesh, Iram worked relentlessly to found Columbia Shares & Securities Ltd in 2021.

Md Saiful Hoque

Md. Saiful Hoque received his bachelor’s degree in Civil Engineering from Columbia University in 1986 followed by a master’s degree from Texas A&M University in 1988. Upon completion of his Graduate Degree, he joined Gulf Interstate Engineering Company in Houston, USA serving as a Project Engineer.

He returned to Bangladesh in 1992 to join Columbia Enterprise Ltd., the family business of Shipping and Freight Forwarding services. In addition, he has built flourishing businesses manufacturing Garment’s Accessories and Fast-Moving Consumer Goods.