Bangladesh’s external debt reached $99 billion at the end of June 2023, surging from $23.5 billion in June 2009 at the beginning of the current Awami League-led government.
The increase of $75 billion, or 322 per cent foreign loans in the past 14 years underscored the country’s growing reliance on foreign loans to fund its development initiatives, economists said.
According to the World Bank’s International Debt Report 2022, India’s foreign debt increased by around 83 per cent, Pakistan’s 101 per cent, and Sri Lanka’s 119 per cent in 10 years between 2011 and 2021.
During the same period, central bank data showed that Bangladesh’s foreign debt increased by 213.6 per cent.
The country’s foreign debt surged rapidly by 51 per cent from $65.27 billion in June 2020 to $98.93 billion in June 2023, a $33.6 billion increase in three years, according to Bangladesh Bank data.
The foreign debt in June in Bangladeshi currency stood at nearly Tk 11 lakh crore at the rate of Tk 110.5 a dollar.
The continuous growth in foreign debt sent per capita debt shooting up to $580 in June 2023 from $283 in June 2017.
Usually, external debt is deemed risky when it exceeds 40 per cent of GDP, economists said.
Bangladesh appears to be in a relatively secure position regarding foreign debt, with the country’s external debt-to-GDP ratio standing at 21.8 in June 2023, they said.
The country’s external debt-to-GDP ratio was 26.3 in 2009.
A country’s external debt refers to the total amount of money that the country owes foreign creditors, such as foreign countries, international organisations, and foreign private entities. It includes both public and private debt obligations.
Bangladesh usually receives foreign loans from multilateral institutions such as the World Bank, the International Monetary Fund, the Asian Development Bank, the Islamic Development Bank, and major overseas commercial banks.
Bangladesh’s central bank data showed that the public sector took $76.67 billion in foreign credit at the end of June 2023, with $64.57 billion borrowed directly by the government and the rest by various government institutions.
Meanwhile, short-term foreign loans in the private sector increased again to $22.25 billion in June from $22.18 billion in March.
However, buyers’ credit dropped to $7.68 billion in June from $8.13 billion in March 2023.
The increase in external liability has significant implications, as a substantial portion of the country’s income will be allocated to debt repayment, experts said.
They stress the need for Bangladesh to carefully manage and prioritise its resources to ensure sustainable economic development, reducing excessive dependence on foreign borrowing.
They said that the crisis was becoming worse with the continuous depreciation of the local currency.
Ahsan H Mansur, the Executive Director of the Policy Research Institute, said that given the current circumstances, an increase in foreign borrowing would play a crucial role in stabilising the foreign exchange market, the balance of payments, and the overall economy.
He pointed out that if the government could manage to boost remittances and exports, the recent surge in borrowing would not pose a threat.
However, should the opposite occur, it might lead to a deeper economic crisis, Mansur told New Age.
Mansur stressed the need for the government to focus on augmenting revenue streams for long-term sustainability.
He added that there had been allegations of project overvaluation and corruption as foreign loans were not being allocated efficiently, which created deleterious effects on the economy.
Therefore, he emphasised the critical need to ensure the cautious utilisation of foreign loans.
Investments should yield profits exceeding costs, Mansur noted, underscoring the importance of maximising returns on these funds.
Zahid Hussain, a former lead economist at the World Bank’s Dhaka office, emphasised the crucial issue of effective utilisation of external debt and the extraction of maximum benefit from it.
He cautioned that if loans were not allocated efficiently in productive sectors, it could lead to repayment challenges, potentially culminating in a crisis for the country.
The devaluation of the local currency against the US dollar has made the country’s interest payments on foreign loans costly, he noted.
The growing imbalance in foreign trade has caused instability in the currency market, with a rise in the interbank dollar rate and a decrease in the foreign exchange reserve, the economist said.
In July 2021, the exchange rate per dollar in the country was Tk 84.80, which increased to Tk 110.5 after the central bank allowed a floating rate.
The gross foreign exchange reserve in Bangladesh, according to International Monetary Fund guidelines, dropped further to $21.45 billion on September 20.
Import payments for the July-June period in the financial year 2022–23 decreased by 15.76 per cent to $69.49 billion, compared with $82.49 billion in the same period of the financial year 2021–22, due to various initiatives.-New Age
