Home ›› 07 May 2023 ›› Opinion
Bangladesh’s success stories in the arena of socio-economic development have earned plaudits across the globe. The development came as a miracle before the world leaders. Since its inception in 1971, Bangladesh’s development journey was not so easy. As a least developed country, Bangladesh needed huge support primarily. The LDCs in the world seldom has the capacity in addressing unexpected economic shocks and climate-induced vulnerabilities. Bangladesh is no exception. Once, Bangladesh was termed as a bottomless basket because of destructive economic indicators and socio-economic scenarios. The country managed the situation admirably and today has stood on its own foot.
Some US-based lenders, widely known as multilateral donor agencies, came forward in a bid to promote the war-torn economy. Obviously, Bangladesh was an aid-dependent country in the beginning. Now, it has turned into a self-reliant economy in many areas. Against the backdrop of being self-reliant, the contributions of global lenders have played a crucial part. Since 1972, the International Monetary Fund ( IMF) and the World Bank ( WB) had been scaling up their assistance in the form of aid and loans. With their support, Bangladesh’s economy has seen great development in recent decades.
In 2015, the World Bank classified Bangladesh as a lower-middle-income country. Afterwards, in 2021, the relevant body of the United Nations declared Bangladesh fit for graduation from the LDC category.
In particular, Bangladesh has so far improved in the area of per capita GNI, Human Assets index, and Economic and Environmental Vulnerability Index; As a result of development in three areas, Bangladesh has been confirmed as suitable to be declared as a developing country. The status of developing country is likely to start from November, 2026.
Intending to address economic-related shocks, Premier Sheikh Hasina Bangladesh moved abroad for seeking aid and loan supports. The world leaders and global lenders’ management did never deny the loans-related requests placed by the premier of Bangladesh. Bangladesh has the lowest revenue and tax-to-GDP ratio in the world. With meagre revenue earnings, Bangladesh is losing its capacity in addressing a wide range of budget deficits. Apart from the budget deficit problem, the foreign exchange reserve crisis has become a much-discussed issue in the economy. According to media reports, the foreign exchange reserve has come down below $ 31 billion which climbed up to $ 48 billion once. Since, the reserve shows one of the strengths of the economy, there is an urgent need to increase the reserves. Currently, Bangladesh needs two supports at a time- budgetary support and foreign exchange reserve support. There are no alternative ways in seeking foreign loans for support.
At the request of the Bangladesh government, the IMF board has so far approved $ 4.7 billion in loans. Of which, the first tranche of the loan amounting $ 476.27 million has already been released. The remaining instalments would be disbursed upon fulfilling conditions given by the IMF board. The loan amount will come from Extended Credit Facility ( ECF) and Extended Fund Facility. IMF’s newly created titled “Resilience and Sustainability Facility ( RSF)” will also finance. Loan repayment tenure has been set at 10 years for ECF and EFF, and 20 years for RSF. IMF gave $ 330 million in loans in 1990, $ 316.8 million in 2003, $ 634 million in 2012 from the ECF fund and $ 177.8 million in 2020, $ 355.5 million in 2020 in the title of Rapid Credit Facility, Rapid Financing Instrument respectively.
Very recently, the World Bank and Bangladesh celebrated 50 years of partnership held at its headquarters in Washington. Bangladesh’s Prime Minister Sheikh Hasina joined the celebration where Bangladesh’s economic performances were put on display on the screen. The World Bank people were happy over seeing progressive economic indicators which were achieved over the past 52 years. The World Bank since 1972 has been providing loan support on condition of easy terms and conditions. International Development Association (IDA), the World Bank’s concessional financing arm, is the leading loans provider. Since, 1972, the World Bank committed to providing $ 39 billion in grants, interest-free loans and concessional credits. The published report said that there are 56 current projects at the cost of $ 16 billion. The World Bank approved about $59 million loans in 1972, $50 million IDA first loan in 1972, $15 million in 1975, $ 28 million in 1979, $ 51 million in 1980, $ 62.3 million in 1988, $25 million in 1989, $ 200 million in 1994, $ 190 million 2002, $875 million in 2013. In the 50 years celebration program held recently, the World Bank approved $ 2.253 billion in loans. Out of the loans, $ 753 million for regional connectivity project, $ 500 million for budgetary support, $ 500 million for Resilience Infrastructure for Adaption and Vulnerability reduction ( RIVER).
In view of the World Bank’s support, it can be said that Bangladesh is the largest development partner of the World Bank. The global lender contributes nearly 32 per cent of the current foreign assistance for Bangladesh under ongoing IDA projects. The lender also supported in promoting the pandemic-hit economy by providing $ 300 million.
In the meantime, Bangladesh has become the second largest recipient of South Korea’s Official Development Aid ( ODA). Already, a deal worth $ 3 billion of concessional loans has been finalized in a bid to expedite infrastructure development in Bangladesh. South Korea will provide loans from its Economic Development Cooperation Fund (EDCF). The repayment tenure for EDCF loans has been set for 40 years and the interest rate is set between 0.01 per cent and -0.05 per cent. Besides, Asian Development Bank ( ADB), China, and Japan are considered development partners of Bangladesh among others.
Prime Minister Sheikh Hasina wishes to seek more foreign debt in addressing LDC graduation challenges. Furthermore, foreign debt is required to achieve the status of upper-middle-income and high-income countries. To achieve Sustainable Development Goals ( SDGs) by 2030, huge financing is a crucial requirement for Bangladesh. Bangladesh’s government is in a race to borrow from multilateral donor agencies- IMF, WB, ADB- in addressing deficit budget and foreign reserves. But, is the government thinking deeply about the repayment method of borrowed foreign loans? According to Bangladesh Bank sources, foreign debt increased to $ 96.25 billion in the October-December Quarter of FY 2022-23 from $ 92.69 billion in the previous quarter, July-September. Bangladesh might have fallen into trouble in the years to come when the debt repayment period will be commenced. The government has to give attention to extending fiscal space and increasing foreign remittance, and export earnings instead of borrowing decisions from external sources.
The writer is an economic affairs analyst. He can be reached at: mazadul1985@gmail.com
