Sunday, 29 May, 2022

Bangladesh in safe zone

Foreign loan situation

Bangladesh in safe zone

Bangladesh’s foreign loan situation is not alarming as that of Sri Lanka and is still in a comfortable zone in terms of debt-GDP ratio, economic analysts say.

Sri Lanka is facing an economic debacle mainly because of uncontrolled hard-term foreign loans, lack of far-sighted domestic monetary management and graft in mega projects.

An acute foreign currency crisis has forced Sri Lanka to stop the import of some essential items. 

Against this backdrop, panic has gripped a large segment of the people that Bangladesh might have to face the same fate as Sri Lanka because Bangladesh is implementing many megaprojects with foreign loans.

Economic analysts, however, assure that Bangladesh is not exposed to that much vulnerability as its debt to GDP ratio is still below the safe zone of 20 percent against Sri Lanka’s over 61 percent.

But with the jump in overseas borrowing by Bangladesh in the last decade, they also cautioned that the government should remain alert about the rising foreign debt. 

“The Sri Lankan economy faced such a debacle mainly because of budgetary mismanagement. This management has different degrees,” commented Dr Zahid Hussain, former lead economist of the World Bank’s Dhaka office and a money market specialist.  

Firstly, as a popular measure, the Sri Lankan government lowered taxes without making alternative arrangements for money for meeting government expenditure, he said.

As a result, the government had to go for widespread money printing, eventually causing skyrocketing inflationary pressures, he explained.

“Bangladesh has not done such things. So, it is not in any risky situation at this moment,” Dr Zahid.

Bangladesh’s foreign debt jumped in the last decade to reach $60.15 billion in 2020-21 fiscal year, which was 2.5 times higher than $23.61 billion debt in 2010-11 fiscal year, according to Economic Relations Division (ERD) data.

The overseas loans actually increased in the last seven years. It was $15.07 billion in 2000-01 fiscal year and $12.71 billion in 1990-91 fiscal year. 

ERD data showed that the country’s total foreign loans stood at $970 million in 1974-75 fiscal year when share of loans in foreign assistance was low compared to grants.  

But subsequently, it gradually rose to $4.38 billion in 1980-81, which nearly tripled in the following decade.

All the current $60.15 billion debts are not the government’s own loan. Of the amount, $50.88 billion government loan and the rest amount include IMF’s budget support and autonomous public corporations’ loans. 

Of the money, $5.13 billon credit has been taken for the power sector, International Monetary Fund (IMF) budget support stood at $2.03 billion, $1.04 billion for the purchase of airctaft for Biman Bangladesh Airlines, $0.50 billion for BCIC’s fertiliser purchase and $0.13 billion for Bangladesh petroleum Corporation’s crude oil purchase.

Experts are now saying that the country’s foreign loans have increased sharply in the last decade as the government launched many mega projects during the period while some are hard-term loans.

Even though the debt level compared to the national GDP remained below the ideal level in Bangladesh, the economic analysts have called for ensuring transparency of the loans to avoid risks.

The country’s tax-GDP ratio was only 7 percent in 1974-75 fiscal year which surpassed 25 percent in 1976-77 and rose further to 32 and 33 percent in next two fiscals before declining to 18 percent in 1979-80. The ratio reached its peak at over 45 percent in FY 93 and FY94.

In the following years, debt level showed a declining trend and came down to 13 percent in 2015-16 fiscal year. It again modestly rose to over 15 percent in FY20 and to 17 percent in FY21.

Dr Zahid thinks that Bangladesh has a similarity with the second cause of Sri Lanka’s present situation which was taking unnecessary big projects with foreign loans. So, he suggested remaining cautious about this.

“Now, Bangladesh is also undertaking big projects and sometimes some less important projects are being included in ADP. Some hard-term loans are also being taken for these schemes,” Dr Zahid noted.

“Repayment of some of these loans will start soon. Then, Bangladesh may feel budgetary pressure in repaying the loans. So the government should remain alert to avert any situation like Sri Lanka,” he pointed out.

Bangladesh is also in a safe zone in terms of food production as Sri Lanka faced a severe food crisis after imposing a ban on chemical fertilizer import.

The only challenging thing will be getting back the $250 million loans given to Sri Lankan government by Bangladesh, he added.