Debt burden gets heavier

Bangladesh is gradually being weighed down by foreign loans, understandable through the budgetary allocation for external debt repayment, which would fester in the upcoming fiscal year and undermine efforts to revive the economy bogged down by the novel coronavirus.

The government has set aside Tk 18,368 crore ($2.2 billion) for foreign debt repayment in the proposed budget, a whopping 16 percent rise from the allocation in the outgoing fiscal year.

However, the external debt-to-GDP ratio that reached 14.7 percent this fiscal year is way below the ceiling of 40 percent, according to the Economic Relations Division (ERD).

In the outgoing fiscal year, the government had an allocation of $1.86 billion for external debt servicing -- $1.2 billion in principal amount and the rest in interest.

Bangladesh repaid $1.1 billion to its external lenders during July-February of the outgoing fiscal year, while the amount was $999 million in the same period a year ago.

The country paid back $1.6 billion of its foreign loans in fiscal 2018-19 -- a surge by 33 percent from the amount a year ago, according to an ERD report titled "Flow of external resources into Bangladesh".

Since Bangladesh's independence in 1971 till June 30 last year, foreign borrowing ran into $58.04 billion of which the government repaid $23.58 billion so far.

The government aims to borrow Tk 70,502 crore from external sources to implement its annual development programme in the upcoming fiscal year.

A senior ERD official, however, said there was no possibility of falling in a debt trap within the next eight years as per their calculations though the government would have to make big repayments in the next four years as some large loans would mature by then.

"The debt obligations will definitely create pressure on the government in the next fiscal year as the coronavirus pandemic is taking a toll on the economy," said Zahid Hussain, former lead economist of the World Bank's Dhaka office.

Bangladesh economy stands to lose a staggering $13.3 billion for the coronavirus outbreak, according to the Asian Development Bank, which is 4.9 percent of the country's gross domestic product (GDP).

Hussain said the government had an option to reduce the debt burden by at least $320 million for the next two years under the Debt Service Suspension Initiative of the G20 countries.

Bangladesh has decided not to enjoy the privilege, according to government officials, as the country is capable of meeting its current debt obligations.

Hussain said the government should have utilised the facility during this crisis as export may not look up anytime soon and remittance will plunge due to the global impact of the novel coronavirus.

In the middle of April, the G20 nations agreed to freeze bilateral government loan repayments for low-income countries until the end of the year as part of a plan to tackle the health and economic crises triggered by the pandemic and prevent an emerging markets debt crunch.

Hussain said the repayment of high-cost suppliers' credit will start soon making the debt burden even heavier.

However, Khondaker Golam Moazzem, research director at the Centre for Policy Dialogue, said the rising amount of external debt repayment is still not a matter of big concern.

But in the next fiscal year, the government will face pressure in making debt repayment as export and remittance will go down significantly due to the global economic meltdown, he said.

"Apart from that, the flow of external assistance may decline."

External debt is good for the economy if it can be utilised properly in the projects that would yield long-term return, Moazzem said.

The government should not take foreign loans against less important projects, he said, adding that external debt creates a bigger burden on the economy than domestic loans as the country has to make repayment in dollar putting a strain on the foreign exchange reserves.

The CPD research director suggested the government apply to the development partners to relax conditions and interest rates of the loans.

Ahsan H Mansur, executive director of Policy Research Institute, said Bangladesh will remain in a comfortable position in making debt repayment in the upcoming fiscal year as the government will receive more than $2 billion from development partners to fight the fallout of the pandemic.

"But the country will face challenges after the next fiscal year as these types of funds might not be available then."