Govt must avert threat that soaring external debt poses

A SOARING external debt and an approaching maturity of a number of large foreign loans appear to be a big threat to the economy. Bangladesh’s total external debt has soared, as Bangladesh Bank accounts say, by $13 billion in a year to have crossed $94.5 billion after June 2022. The amount stands at more than Tk 9,07,229 crore at the rate of Tk 96 a dollar. The government has directly borrowed $56.54 billion in long-term loans while various government institutions have borrowed $12 billion dollars and the private sector has borrowed $24.98 billion from multilateral lending institutions — the World Bank, the International Monetary Fund, the Islamic Development Bank, the Asian Development Bank, and large overseas commercial banks and institutions. Such an increase in external debt, still said to be in a manageable state though, means an increasing debt repayment rate. The payment for loans has already become the fourth biggest head in the overall expenditure after public administration, education and technology, and transport and communications in the budget. The situation is likely to worsen and debt repayment might eat up a major portion of the revenue.

The Economic Relations Division estimates that the volume of external debt repayment will double in about three years — from $2.4 billion this financial year to $4.02 billion in 2025–26. The depreciation of the taka against the dollar has, moreover, made the debt repayment a major burden that might take a turn for the worse, with increasing trade deficit and declining foreign exchange reserve. The trade deficit hit a record $33.24 billion in 2022–23 against $23.78 billion in 2021–22 while the foreign exchange reserve declined to $37.13 billion in September after having reached a record high of $48.06 billion in August 2021. More external borrowing, therefore, looks ominous, especially when the government has not been able to properly use external loans. The selection of financially less beneficial projects to be implemented with foreign credit, coupled with delayed implementation and corruption, might lead to a situation like that of Sri Lanka, where major portions of debts were invested in less viable projects. External borrowing by the private sector can also become a cause of concern as failure to repay loans could discredit the country and negatively impact the sovereign rating.

The government has a number of issues to address to avert any unfortunate economic situation over external debt. It must stop taking up unnecessary and financially unviable projects. It must also end irregularities and corruption in project implementation. The government, which is reported to go for further external loans, must assess lenders, examine their terms and conditions and the debt servicing modes in future. It must also strengthen its oversight of private-sector companies receiving foreign loans. It must, lastly, emphasise domestic revenue mobilisation to finance budget deficits rather than taking out massive loans from foreign sources.

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