External debt rising rapidly

Bangladesh’s external debt increased by 23.61 per cent to $93.23 billion in March 2022 compared to the same period of the previous year.

According to Bangladesh Bank (BB) data, at the end of March this year, the total external debt of Bangladesh stood at $93.23 billion, an increase of about $18 billion or 23.61 per cent.

Of the total debt, public sector external debt increased by 15.28 per cent to $68.25 billion and private sector by 54 per cent to $24.98 billion.

Experts say the government’s external debt has already begun to increase due to exchange rate volatility. In such a scenario, the rise in foreign debt will no doubt put more pressure on the economy.

Now the current account deficit is increasing and it is under pressure. If foreign debt continues to rise, it seems that the pressure on the capital account will also increase, said Zahid Hussain, the former lead economist of World Bank (Dhaka Office).

“We have to be ready for that,” he told The Business Post.

He says as part of this the government is now borrowing from the IMF and the World Bank. If the government gets the loan as promised then the pressure can be reduced.

Bangladesh is, for the first time, looking forward to getting more than $1 billion from the World Bank for budget support and $4.5 billion from the IMF as a support for the country’s balance of payments.

Professor Mustafizur Rahman, Distinguished Fellow of the Centre for Policy Dialogue (CPD), said after LDC graduation cost of loan would increase and tenure would reduce.

On the other hand, due to the instability of the exchange rate, the cost of repaying the loan has increased more than before. Problems can arise if action is not taken in advance.

External debt in the private sector is increasing rapidly

The amount of foreign debt in the private sector is increasing rapidly. The amount has almost doubled in the last two years. Debt has risen from $13.23 billion to about $25 billion between March 20 and March 22.

More loans are short-term ones in private sector, which is costlier than long-term ones. Now that the dollar price is rising, so the cost of repaying loans will increase in this sector.

If companies cannot raise foreign exchange earnings, repayment will be under pressure.

The rule of approval of this loan was that those who could save foreign exchange by reducing imports or increasing exports would get this approval.

But that was not followed properly. “So the increase in debt in the private sector is a concern for us,” said Zahid Hussain.

What to do to reduce the pressure

In the last two years, the external debt has increased by $32.29 billion. This has increased mainly due to support during pandemic and implementation of mega projects.

However, analysts say the cost of the public project needs to be reduced, noting that Bangladesh is not yet in the same situation as Sri Lanka.

Muztafizur Rahman said: “We have to be careful in our project selection. Affordable projects need to be selected and implemented on time. At the same time, good governance must be ensured.”

Zahid Hussain said there is no crisis like Sri Lanka yet. “But we have reached a stage where there is a concern.”

Although the government announced not to take the import intensive project, I did not see anything like that in the budget. But it is important to implement as announced, he said.