Debt servicing pressure to mount in 2023-24

The World Bank has warned that the low and middle-income countries will suffer a mounting pressure of debt servicing in the next two years, due to the hike in private sector foreign debt, increase in interest rates, and depreciation of currencies against the greenback.

The recently published “International Debt Report 2022” by the World Bank adds, “Payments scheduled for 2023 and 2024 are likely to remain elevated because of high interest rates, maturing principal, and the compounding of interest on Debt Service Suspension Initiative deferrals.

Debt service payments take away scarce fiscal resources from health, education, social assistance, and infrastructure investments, it added.

Bangladesh is now a lower middle income country according to the World Bank income scale, and the country’s foreign debt has increased 3.67 times in the last decade. Moreover, the private sector’s external debt position has increased 10 times, show the central bank data.

As debt has grown in recent years, its composition has changed rapidly. Low- and middle-income economies have become increasingly indebted to private creditors, especially the bondholders, mentions the report.

It added that in 2021, the debt stock of low and middle income countries rose by 5.6 per cent to $9 trillion, of which the International Development Association (IDA) countries – which also includes Bangladesh – owe nearly $1 trillion.

With the 2022 growth outlook, interest rates much higher, and many currencies depreciating, the burden of debt is likely to increase further. After Russia invaded Ukraine in February this year, Bangladesh has witnessed a continued depreciation of Taka against the USD.

Another World Bank report titled “International Debt Statistics 2022” published last year showed that Bangladesh was the number three among the top ten countries at risk due to foreign debt in FY20.

Bangladesh’s external debt position

Bangladesh Bank data show that the amount of foreign debt stood at $95.85 billion in FY22, whereas it was only $26.32 billion in FY12. At the same time, the private sector external debt increased from $16 billion to about $26 billion. Total debt position increased around four times and private sector debt position increased ten times.

According to the International Debt Report 2022, external debt stock was $26.57 billion in 2010, which increased 3.44 times and reached $91.43 billion in 2021. Short term loan was $2.95 billion in 2010, which rose to $18 billion in 2021.

At the end of 2021, 61 per cent of the $3.6 trillion in long-term public and publicly guaranteed external debt stock was owed to private creditors – a significant rise from 46 per cent in 2010.

In IDA countries, the share owed to private creditors went up from 5 per cent in 2010 to 21 per cent in 2021.

The multi-lender institution said greater transparency will improve incentives for the implementation of policies that strengthen debt, fiscal sustainability, and promote debt transparency.

According to the International Monetary Fund’s (IMF) Global Debt Monitor 2022, Bangladesh’s private debt, loans and debt securities occupied 38.27 per cent per cent of the country’s GDP in 2021.