Home ›› 29 Sep 2021 ›› Opinion
Taking loans from external sources is not considered burden for any economy if loans are properly utilised. The least-developed countries’ ability to bring economic success through borrowing activities is already proven. Especially, the low-income and middle-income countries rely on development partners’ assistance for bringing sustainability to the economy. For ensuring better living standards for people, poverty reduction, and infrastructure development, huge financing is required. If any country’s debt position rises above 40 per cent of total Gross Domestic Product (GDP), it triggers off economic instability. The International Monetary Fund (IMF) said this in its report titled “From Stimulus to Consolidation: Revenue and Expenditure Policies in Advanced and Emerging Economies” about debt in an economy. The IMF report pointed out that the debt-to-GDP ratio should not exceed 40 percent for a long time in emerging and developing economies.
The government tackles unexpected situation with loans taken from both domestic and external sources. In every fiscal year, the government takes loans from banks and multilateral donor agencies to address deficit budget. Bangladesh with 6.0 per cent deficit budget is presently grappling with different economic realities. The government’s bank borrowing is increasing every year. Nevertheless, under-construction mega projects are financed by multilateral donor agencies owned by different countries.
Four South Asian nations- Bangladesh, Sri Lanka, Pakistan, and India have long been carrying out development activities with the assistance of donor agencies. In South Asia, only Nepal maintains gross debt below 40 percent of total GDP. Nepal’s debt to GDP ratio was recorded around 38.76 percent in 2020. Sri Lanka is expected to experience gross debt approximately 92.10 percent of total GDP followed by Pakistan (83.35 percent) and India (73.80 percent). The Washington-based Institute of International Finance (IIF) recently conducted an analysis on the world’s frontier markets. Based on economic features, Bangladesh is a frontier market. The IIF study revealed that Bangladesh’s government debt reached 39.6 per cent of GDP in 2020.
The finance minister of Bangladesh, A H M Mustafa Kamal, MP, in the parliament stated that the current foreign debt now stands at $ 49,458 million. The minister also said that the amount of loan agreements with various development partner countries and institutions as of June 30, 2021 is $ 95,908.34 million. It is worth mentioning here that per capita foreign debt is recorded Tk 24,890 ($ 292.11) considering a total of 169.31 million people in Bangladesh. According to media reports foreign debt stood at $44.4 billion in fiscal 2018-2019, which was 13.4 percent of the GDP. According to the Economic Relations Division (ERD), the external debt-to-GDP ratio recently reached around 14.7 per cent.
The volume of foreign debt has been clearly following an upward trend due to Covid-19 induced situation. The world’s traditional development partners always stand by Bangladesh in the crisis moment. The ongoing pandemic period is not an exception. As part of their obligation, the World Bank, IMF and ADB provided $ 2.0 billion for Covid-19-related projects. Since the beginning of the pandemic, Bangladesh government has so far rolled out stimulus packages worth Tk 1.24 trillion equivalents to USD 14.58 billion, which is around 4.44 per cent of GDP, aiming to offset economic losses.
The US -based lender, IMF, in the meantime, made projection that the poor countries have to spend about $250 billion up to the year 2025 to respond to the pandemic and an additional $250 billion to reduce poverty. Bangladesh’s public debt-to-GDP ratio might touch at 41 percent owing to increased borrowings for pandemic reason- the financier also noted. The IMF in its flagship report titled “Fiscal Monitor-April 2020” forecasted gross debt for the countries around the world including Bangladesh, India, Nepal, Pakistan, and Sri Lanka. In the report, IMF stated that Bangladesh’s gross public debt is set to rise to 40.12 percent of GDP at the end of 2020-2021 fiscal year.
In the national budget for FY 2021-2022, out of total budget amount Tk 603,681 crore, about 18.8 per cent from domestic loans, 16.2 per cent from foreign loans will be collected. According to a business newspaper, Bangladesh sets goals to reduce poverty from 20.5 per cent to 15.6 and extreme poverty from 10.5 per cent to 7.4 per cent of its population within next five years. It is good to know that the
Asian Development Bank has pledged to lend $10-$12 billion from 2021 to 2025 under its Country Partnership Strategy (CPS). The CPS support came mainly for the implementation of Eighth Five-Year Plan. It is mention-worthy
that ADB for the last five years provided loans to Bangladesh a total of $9.6 billion.
The financing of delta plan 2100will likely necessitate more borrowing in future. Apart from taking loans from US-based lenders, China-owned financiers are showing interest to give out loans for infrastructure development. China-based Asian Infrastructure Investment Bank (AIIB) in the last five years committed to provide $4.2 billion in total. Brazil, Russia, India, China, South Africa (BRICS)-formed the New Development Bank ( NDB) which is set to lend soon. The NDB headquarter is located in Shanghai, China. It is expected that G20 led program
titled “Debt Service Suspension Initiative (DSSI)” came as blessing for low - income group nations. A media report suggested that the government had an option to reduce the debt burden by at least $320 million for the next two years under DSSI arranged by G20 countries.
Since revenue to GDP ratio in Bangladesh is around a meagre nine per cent, increased debt burden for the government essentially represents a negative feature of the economy. Out of 169.31 million people in Bangladesh, not more than 3.0 million people submit tax returns. If the revenue earnings surpass expectation, it will put Bangladesh economy into an advantageous position.
It is to be noted that many countries in the world have become insolvent in the time of paying back the foreign loans. Bangladesh cannot be in denial mode when it comes to its need for public debt for multiple purposes right now. Transparency of debt maintaining surely helps earn repayment reputation for one of the fastest growing economies Bangladesh.
The writer is an economic affairs analyst. He can be contacted at mazadul1985@gmail.com
