Monday, 5 June, 2023

Prudent foreign debt management required

Bangladesh’s foreign debt is growing fast, which is propping up the forex reserves as well as the value of taka against a free fall. Moreover, now that Bangladesh is preparing to become a more competitive economy in the world forum, especially in the post-LDC era, foreign debts are coming in handy in building up necessary infrastructure, boosting the energy sector, developing human capital and so on.

But the long-term ramifications of too much external debt may be complicated and painful when the cost of public debt servicing will become too high. Therefore, even though Prime Minister Sheikh Hasina has confidently said Bangladesh “never fall into debt trap”, prudent foreign debt management policies are required. At the same time, it has to be ensured that costly foreign debts are not being wasted by investing in unproductive sectors or projects.

Bangladesh along with many other countries has been experiencing an economic slowdown and hyper inflation since the Ukraine-Russia war broke out in February 2022. The whole world is exposed to the vulnerabilities and is struggling to tame inflation, stagflation and rising debt. A number of countries, including Lebanon, Sri Lanka, Russia and Zambia, have already defaulted on their foreign loans, and a Bloomberg report indicates that 12 other countries, including Argentina, Ukraine and Tunisia, are on the verge of defaulting.

However, it is reassuring for us that Bangladesh is not on the list of vulnerable countries which are feared to be mired in debt crisis. It indicates a solid foundation of Bangladesh’s economy thanks to robust growth in export and a healthy remittance inflow. After a successful handling of the Covid-19 pandemic through a massive vaccination campaign, the country’s manufacturing and service sector bounced back which led to a strong growth in the last two fiscal years.

But the war in Ukraine and associated sanctions has shot up inflation as the prices of both food and non-food items have skyrocketed globally. Persistent rise in exchange rate and current account deficit have also appeared to be major economic concerns. But overall, Bangladesh remained at low risk of external and public debt distress, according to an assessment of World Bank-IMF debt sustainability analysis. So, indications are there that Bangladesh economy is capable of absorbing external shocks, thanks to its strong economic base and resilient nature of its people, which enables Prime Minister Sheikh Hasina to brim with confidence while dealing with the development partners.