Home ›› 30 Oct 2022 ›› Opinion
Continued Russia’s invasion of Ukraine put the entire world upsetting situation. The types of low- middle-high income group countries in the world have already started experiencing economic trauma arising from the war. Shortly after the virus disappeared (not entirely), the world’s people were caught in the war. As a result of the war, consumers flooded globally and are now under record inflationary pressure. The macroeconomics index in Bangladesh is in a bad state to look. Balance of Payment (BoP), current account, and international trade are in a deficit situation in Bangladesh. The nation, hit hard by the recently outgoing pandemic, has started experiencing a recession period in the economy.
In line with the World Bank and the recent IMF projection, economic growth is set to come down. Amidst the downturn situation in the economy, Bangladesh has so far begun negotiating with multilateral lending agencies for seeking loans. It has been said that developing countries are set to lose loan repayment capacity in the coming days. The projection was made recently by the World Bank president Mr. David Malpass following the global economic downturn for where Bangladesh has been named.
Over the last couple of years, the pace of development activities in Bangladesh surpassed its peer economies. Close to a dozen mega projects that are now visible are an example. Besides, hundreds of small-scale projects are waiting to be launched. With foreign funds, the extra-large projects are in a race to be inaugurated soon. A few projects already came into view for being utilized. Apart from project funding, the multilateral donor agencies come forward to cover the fiscal deficit gap. Because of meager revenue-to-GDP ratio in Bangladesh, the dependency on external sources is growing.
Still, Bangladesh could not grow fiscal capacity in financing the mega projects. According to the Bangladesh Bureau of Statistics (BBS), as of FY 2021, the revenue to GDP ratio stood at 9.31 per cent. On the contrary, the tax to GDP ratio recorded 7.64 per cent during the period- lowest in South Asia. Intending to address the need of the nation, the budget size is on the rise. Whenever Bangladesh experiences painful situation in the economy, it needs support from donor agencies.
The International Monetary Fund (IMF) has extended budgetary support three times. The financial supports for various purposes come from not only the IMF but also the World Bank (WB), Islamic Development Bank (IsDB), and Asian Development Bank (ADB). In the coming days, loan support is expected from the China-led New Development Bank (NDB) for Bangladesh’s needs.
Since Bangladesh earned a wide range of reputation in debt repayment, the lending agencies prefer Bangladesh for sanctioning loans amount. Mainly repayment capacity depends on the proper and timely utilization of loans from external sources. Timely project execution is also required to ensure the projects’ earnings. No matter how much Bangladesh takes debt from external sources. Bangladesh ought to ensure revenue generation first from foreign-funded projects. Bangladesh is now in a comfortable zone regarding the debt-to-GDP ratio. According to the central bank of Bangladesh, the total national external debt reached $ 94.6 billion in FY 22, which was $ 37.3 billion in FY 2015. In FY 22, the external debt to GDP ratio and debt to export ratio stood at $ 20.6 and $ 116.2, which were 15.9 and 74.9, respectively, in FY 15. A Bengali newspaper reported that external debt in Bangladesh will stand at $ 115 billion in 2023 and 130 billion in 2030. The country’s foreign exchange reserve is decreasing, which has recently gone below $ 36 billion. Foreign debt is taken as currency composition or the stated foreign currency. Whenever Bangladesh decides to repay the external debt, it has to pay it back through foreign currency. It is essential to know that external debt has increased over the years in all currencies- USD, Euro, Japanese Yen, and others except SDR. If the falling trend of foreign reserves continues, in what way Bangladesh plans to repay external debt? Though Bangladesh’s external debt position is in the green zone, it might enter the yellow zone from the year 2024. If revenue earnings be increased to a great extent, the possibility of going yellow zone would be narrowed.
Since the country began experiencing foreign reserve crisis, the government sought a $ 4.5 billion from the IMF. Around $ 1.0 billion is also expected to come from the ADB. The fund from the IMF would be approved upon terms related to the modernization of revenue administration and bringing good governance in the banking sector. IMF’s green signal to give away loans is a blessing for Bangladesh. Whenever the IMF makes decision to approve debt, some areas in Bangladesh are reformed as part of the IMF conditions. Earlier, VAT law was enacted as part of the IMF terms. Besides, the debt now helps foreign reserves to be bolstered.
Recently, the IMF came up with a new programme, “Resilience and Sustainability Trust (RST). The $ 45 billion program was launched to support low-income and middle-income countries hit hard by short-term challenges. Currently, the challenges faced by the governments are capital flight, high inflation, fiscal and financial challenges. Under the programme, low-cost and zero-interest rate loans would be available for the concerned countries. To qualify for RST programme, the borrowing countries shall have to develop credible policy and reform measures. Considering the current economic situation, Bangladesh should move to seek debt from the IMF RST programme.
With its existing resources, Bangladesh still keeps the capacity to pay debt back to the lenders. Previously, Bangladesh did not take advantage of debt-related facilities.
Bangladesh already turned down G-7 proposal when placing the ‘Debt service Suspend Initiative-2020’ offer. No matter what capacity Bangladesh keeps now. The essential point is that Bangladesh must be cautious in using external debt. Economically vulnerable country, Sri Lanka seldom shows intelligence in taking and utilizing external debt. Bangladesh is to move for concessional loans or zero interest loans to reduce debt-related pressures. Hopefully, China-led New Development Bank will offer low-cost loans for Bangladesh in the future, which would be helpful for Bangladesh’s economy.
The writer is an economic affairs analyst. He can be reached at mazadul1985@gmail.com
