Bangladesh’s external debt has exceeded $100 billion yet again, a burdensome milestone the country had previously reached for the first time in December last year.
According to latest data published by the Bangladesh Bank on Wednesday, the country’s foreign debt stood at $103.78 billion until June this year. Of the figure, public sector loans reached $71.04 billion and private sector $20.57 billion.
The government has only $1 million short-term loans, but the private sector has $11.40 billion short term loans, which they usually have to repay within a year.
Analysts say during the Hasina regime, the government implemented several mega projects that created a huge loan burden for Bangladesh. Due to the Boishommo Birodhi Chhatra Andolon movement, Hasina regime fell on August 5, and she promptly fled to India.
Before leaving the country, Hasina had put Bangladesh's economy under severe pressure, including a persistent USD shortage and gradual depletion of reserves. As a result the exchange rate jumped, which in turn affected the essential commodity prices and increased the living costs or inflation.
Bangladesh still records the highest inflation among South Asian countries.
Speaking to The Business Post, former lead economist of World Bank Dhaka Office Zahid Hussain said, “Due to the shortage of USD, payments for fuel and fertilisers became due. We have to pay such dues, otherwise the economy will not function.
“We can improve the current situation only by boosting the flow of USD supply. That is why we had to take new foreign loans. During June this year, loans under the IMF programme have added up, causing the amount of debt to increase.”
The International Monetary Fund (IMF) disbursed $1.15 billion as part of the third tranche of a $4.7 billion loan programme for Bangladesh on June 28 this year. The amount got added to the foreign exchange reserves, and the central bank’s total gross reserves increased to around $26.50 billion.
According to Bangladesh Bank data, long term external debt stood at $89.60 billion and short term reached $16.03 billion at the end of June this year. Total external debt growth was 5.8 per cent in FY24, compared year-on-year to FY23.
However, the long-term debt growth was higher compared to short term debt. Loan term external debt growth was 9.2 per cent and short term -11.5 per cent in FY24, compared to year on year.
On the issue, Zahid Hussain said, “To manage foreign debt, we must boost the USD inflow by increasing exports, remittance income, while preventing capital flight. Besides, we need to reduce repayments of existing loans.
“A review of mega projects has begun. If any less profit-making contracts are found, we will have to cancel or review that. I see no alternatives. More importantly, if the use of debt increases, the repayment capacity will also increase,” said the eminent economist, who is also a committee member for White Paper on Bangladesh Economy.
The external debt to GDP increased to 22.60 per cent until June this year, of which 18.11 per cent is public debt and 4.5 per cent private debt. External debt to GDP ratio stood at only 15.5 per cent in FY16.
The long-term loans, which were mainly borrowed by the government, have easy terms and little cause for concerns. But the private sector’s short-term loans put pressure on the economy. Short-term debt, especially in the private sector, is risky for any country, and analysts recommend paying those timely.
Zahid Hussain said, “The private sector must repay the loan from its own income. This is not the government’s responsibility. The private sector was responsible for taking out such loans, and it falls on their shoulders to facilitate timely repayments.
“Most of their loans are trade related, and they must earn enough USD against their foreign loans.”
