Home ›› 27 Jul 2021 ›› Front
The government debt liability both on the foreign and domestic fronts is increasing at a faster pace over the years as revenue earnings register lackluster performance amid coronavirus emergency, reveals a document of the Ministry of Finance.
Economists and senior government officials are of the view that the government should be alert in borrowing and spending amid the ongoing slow economic activities and poor revenue earnings.
According to the latest data, debt portfolio of the government as of June 30, 2020 was Tk 10,03,773.72 crore, or equivalent to 35.36 per cent of GDP (Gross Domestic Product).
Of the 35.36 per cent, domestic borrowing accounts for 22 per cent and the foreign debt 13.36 per cent.
“Though the trend is not alarming, the government should be cautious about borrowing and serious on earning more revenue,” Ahsan H Mansur, executive director at the Policy Research Institute, told The Business Post.
He said the Covid-19 pandemic continues to affect the economy that hit the revenue collection.
The Ministry of Finance has recently prepared a summary on the states of domestic and foreign debts, their soaring trends, impact of sovereign guarantee issuances and debt servicing liability of the government.
Of the total, Tk 6,28,938.60 crore was borrowed from domestic sources - banking and non-banking heads. The amount is equivalent to 19 per cent of the GDP.
The remaining Tk 3,74,834.72 crore or $44.09 billion was borrowed from external sources, which is equivalent to 13.36 per cent of the GDP.
As of June, 2020, the government borrowed $29.10 billion from multilateral lending agencies, while the rest came from bilateral lenders, says the finance ministry summary.
The debt to GDP ratio was 31 per cent in June, 2016; 30.99 per cent in June, 2017; 31.93 per cent in June, 2018; and 33.66 per cent in June, 2019.
A senior official at the finance ministry said it was true that the debt liability was increasing year-on-year, due mainly to meeting expenditure cost for large project implementation and poor revenue earnings.
“The pandemic made us handicapped in terms of revenue earnings. Only 9 per cent growth in revenue in the first 11 months up to May of the outgoing fiscal is somewhat worrying,” an additional secretary to the finance ministry said, asking not to be named.
“Still debt liability and servicing are under control.”
Talked, Pear Mohammad, additional secretary, of the ERD said soaring trend of foreign debt poses no risk for the economy.
“Our economy has enough strength to sustain borrowing even it crosses 40 per cent of the GDP,” Pear told The Business Post.
However, the government is alert on costly foreign borrowing, he added.
Interestingly, the government borrowed more from non-bank sources than banking sources as of June 30, 2020, according to the document.
Of the total domestic borrowing, Tk 2,90,291 crore was borrowed from the banking source while Tk 3,38,647.60 crore from non-banking source, including Tk 3,01,267.88 crore from costly savings instruments.
The accumulated amount of borrowing from the banking source as of June 30, 2019 comes about Tk 2,10,163.33 crore. It was Tk 1,72,594.99 crore in June, 2018; Tk 1,65,673.02 crore in June, 2017; and Tk 1,67,552.44 crore as of June 30, 2016.
Of the foreign borrowing, 75 per cent of the total $44.09 billion was borrowed in concessional loan, and the rest 25 per cent in non-concessional or commercial loan, according to the finance ministry official.
“Our debt-serving in 2019-2020 was around $1.70 billion, of which $1.25 billion was principal amount,” an Economic Relations Division (ERD) official under the finance ministry said.
He said with the upgradation of the country’s status from a least developed country to a middle-income country in 2026, the composition of foreign debt would be reversed, meaning proportion of non-concessional loan will decrease alarmingly.
“We are alert, not alarmed of the looming challenge,” he said.
According to the ERD officials, the amount borrowed from foreign sources came under six currencies – SDR (Special drawing rights), USD, EURO, YEN and RMB.
AB Mirza Azizul Islam, former adviser to a caretaker government, said the government should be cautious although the debt limit is still at a manageable level.
He said the debt has been on the rising trend, fuelled by the Covid situation.
Aziz said central banks across the globe are pushing quantitative easing and expansionary monetary policies to support the deficit so that borrowing is lessened.
The economist said once the pandemic is over, the situation might improve provided that the revenue board augments revenue collection.
Besides soaring borrowing from local and foreign sources, the government as of June 30, 2020, issued around Tk 1,00,000 crore worth of sovereign guarantees to foreign lenders to implement projects in infrastructure and power sectors, officials said.
“Each year we have to issue 14-15 sovereign guarantees against different development projects,” a senior finance official said, adding that guarantees become a financial liability for the government in case borrowed money is not refunded.
Sovereign guarantees are given by host governments to assure project lenders that the government will take certain actions or refrain from taking certain actions affecting the project.
In theory, the government is forced to accept risks such as exchange rate and political risk because it is better able to manage it through sound economic policies.
Finance officials said in practice, however, the heavy debt burden under which many a developing country is labouring may be compounded during a period of economic difficulties in the host country.
“Still, we are in a comfortable situation in terms of issuance of sovereign guarantees,” another finance official told The Business Post.
