External Debt: Repayment to hit record high
Bangladesh is going for a record amount in external debt repayment this fiscal year, putting pressure on the almost stagnant foreign currency reserves and tightening market conditions.
The Economic Relations Division data shows that the government has paid $1.34 billion to external lenders in the first 10 months till April of the outgoing fiscal year, up by 14.4 percent than what was paid over the corresponding period a year ago.
Bangladesh repaid $1.2 billion to its external lenders in fiscal 2017-18, according to the latest report on “Flow of External Resources into Bangladesh” compiled by the ERD.
Since independence, the country’s foreign borrowing has been $51.83 billion till June 30, 2018. The government repaid $21.98 billion and the outstanding debt stood at $39.58 billion till April this year.
The government set a target to bring in $7.2 billion in foreign loan in the ongoing fiscal year. During the last nine months, it borrowed $4.52 billion whereas the amount was $3.42 billion in the corresponding period last year.
Analysts said still Bangladesh was in the comfort zone but the situation would turn critical after five years when repayment of big and supplier credits begin.
Economists assume that the loan repayment allocation would significantly be hiked in the budget.
A senior ERD official told The Daily Star that there was no possibility of falling in a debt trap within the next 10 years as per their calculations despite the fact that the government would have to make big repayments in the next five years as large loans mature.
According to Zahid, loan repayment would not be a big problem for the government as it would be ensuring proper utilisation of foreign loans.
“Foreign loan repayment is not a burden for Bangladesh at this moment. It may put pressure on the economy after five to six years when repayment of big and supplier credit loans will start,” said Zahid Hussain, lead economist at World Bank Dhaka office.
However, he said, if the government uses it properly in a way to contribute to the economy and continue the present economic growth, it would not create any pressure.
According to him, the government is implementing some infrastructure projects which would not be economically viable as their cost overruns and implementation delays would put the economy at risk.
“Implementation delays of infrastructure projects will not bring expected returns,” he said.
Zahid Hussain sees unnecessary expenditure in the implementation of big projects and the government taking up expensive loans irrespective of where it has been mobilised from.
He said loans from the World Bank, Asian Development Bank and Japan International Cooperation Agency were still concessional but the others were really expensive and of short terms compared to those of multilateral lenders.
He further said the percentage of expensive credit was still not at a risky level and was still manageable, but in future it would create pressure on the economy due to cost overruns and project implementation delays.
If the returns are lower than the implementation costs, it will definitely create pressure on the economy and the government will have to reduce allocation for education and health and social welfare to make loan repayments, he noted.
Ahsan H Mansur, executive director of Policy Research Institute, said Bangladesh will face a debt burden after five to six years when repayment of expensive loan starts.
The government should be careful in the selection of projects and only those with good returns should be implemented, he said.
“I think expensive projects like the Padma rail link, Karnaphuli tunnel and Dohazari to Cox’s Bazar rail line will not be economically viable as there will be no good returns,” he said.
“The government will have to make repayments higher than returns.” he said.
According to Mansur, if the export volume and remittance did not increase alongside the GDP growth, the government would have to impose taxes which would have to be borne by the citizens.