The government has so far sought low-interest loans worth $2.4 billion from six global lenders to finance stimulus packages for the economy and the poor people and to assist the other victims of the coronavirus pandemic.
The Economic Relations Division of the finance ministry has already started to communicate with the local offices of the international lenders so that the expected funds are approved and released as soon as possible.Officials said that the government sought loans worth $750 million each from the World Bank and the International Monetary Fund, $500 million from the Asian Development Bank, $250 million from the Asian Infrastructure Investment Bank, $100 million from the Islamic Development Bank and $50 million from the International Islamic Trade Finance Corporation.
The government sought the loans as budget support from the WB and the ADB to provide support to low income groups in the society under social safety net programmes.A country can utilise the funds received as budget support as its priority without any question from the lenders. Te funds are also released quickly.
On the other hand, the government sought loans from the IMF to maintain the stability of the balance of payments.Officials of the finance ministry said that the government sent letters to the lenders and initially received positive responses.They said that the loans would mainly be used to finance the stimulus packages announced for the poor, businesses and exporters, to provide subsidy to various sectors and support to low income groups.A portion of the loans will also be used in the health sector to increase its efficiency in fighting the coronavirus pandemic, they said.
The country’s repayment of foreign loan and interest in the first half of the current fiscal year approached $845million, up from $747million in the same period a year ago, according to preliminary data from the Economic Relations Division’s Foreign Aid Budget and Accounts Wing.
In the current fiscal year, the government has kept aside $1.85 billion for external debt servicing – $1.2 billion in principal and $570million in interest. The amount was $1.59 billion in the last fiscal year.
External debt to GDP ratio has been on the rise-from 12.8 percent two years back to 14.7 percent in 2018-19-far below the risk ceiling of 40 percent, Economic Relations Division data showed.External debt has been on the rise, reaching close to $38.5 billion in June-end last year, up from $26 billion three years back.
Last year, the International Monetary Fund said Bangladesh had a low risk of external debt distress and had the scope to borrow more to finance large infrastructures. Economists and research organisations like the Centre for Policy Dialogue on several occasions have warned that Bangladesh, though not yet in a position that points to a debt trap, could face debt-servicing pressure if foreign loans for big projects are not negotiated with extra caution.
China pledged $21.5 billion for 27 infrastructure projects during President Xi Jinping’s visit to Dhaka in 2016, but disbursement has so far been around six percent of the country’s foreign debt-not a level to worry about.Economic Relations Division officials are upbeat about Bangladesh’s history of never defaulting on foreign loans and its status as a less-indebted country. Md Mostafizur Rahman, joint secretary of the division, said disbursement increased during the last two to three years and that is why repayments have gone up.He sees nothing unusual in the rising trend in external debt servicing.
From fiscal year 2012-13 to fiscal year 2016-17, the release of foreign assistance was from $3 billion to $3.5 billion. In the following fiscal year, Bangladesh set a new record in the use of foreign assistance. The release of foreign funds amounted to $6.16 billion, rising to $6.21 billion in fiscal year 2018-19.A number of agreements relating to big projects have been signed and disbursement has also started. So repayment is also rising.
Up to October, growth of disbursement was slower than repayment, slowing down project implementation as yet more than a third of annual development outlay is expected from external sources.Inefficient public spending raises doubts over expected returns from huge infrastructure projects.
Domestic borrowing of the government, from banks in particular, has ballooned.In the current fiscal year, the government set aside Tk57,068 crore or 18.2 percent of its operating budget for interest payments of domestic and foreign loans.If both domestic and external debts are put together, the repayment of principal and interest amounts would account for above 33 percent of GDP. But compared to other countries, including India and Pakistan, the debt-GDP ratio is not yet a cause for worry.
“There is a debate on what should be the optimal ratio of debt to GDP ratio. The issue is where you are using the debt-to make bridges or to buy tanks as in Pakistan,” says Dr Biru Paksha Paul, who has served the Bangladesh Bank as chief economist.Big projects have brought fortunes for countries like Singapore because they implemented them efficiently, he said.
