For a developing economy like Bangladesh, external debt is often a necessity. However, it is also a double-edged sword in that it provides essential capital for infrastructure and development but also carries with it a perilous pitfall in the form of debilitating repayment traps.
To that end, the latest figures from the Economic Relations Division offer some sobering insights. The fact that in July we repaid a sum of $446.68 million -- over double of what we received in new foreign loans -- underscores a dangerous and unsustainable trajectory. This net outflow of foreign currency, set to accelerate towards an estimated $5 billion this fiscal year according to relevant authorities, is no longer a future concern but a pressing crisis that demands immediate and strategic action.
For years, Bangladesh has leveraged foreign loans to fuel its impressive infrastructure and development drive. However, as ERD officials rightly note, many of these recent loans carry stringent conditions, higher interest rates, and shorter maturity periods.
The solution, however, does not lie in a wholesale retreat from foreign borrowing, which indeed remains a tool for strategic financing. Instead, the imperative is for Bangladesh to fundamentally strengthen its economy’s revenue-generating capacity to reduce our reliance on such debt. We must shift from a debt-dependent model to a self-financing one, which requires a two-pronged strategy: Aggressively attracting foreign investment and decisively reforming our domestic tax apparatus.
Bangladesh must market itself as an irresistibly attractive destination for foreign direct investment (FDI), which is is an injection of capital, expertise, and technology that creates jobs, boosts exports, and strengthens our balance of payments without adding to our debt stock. To achieve this, the administration must move beyond rhetoric and address perennial hurdles such as overt bureaucratic red tape, policy inconsistency, and corruption within its own ranks.
Similarly, Bangladesh must enhance domestic revenue mobilization. However, this cannot be achieved through the lazy and regressive tool of indirect taxes. Increasing VAT or duties on essential goods disproportionately burdens the poor and the middle class, stifles consumption, and fuels inflation.
Bangladesh has been spending more than it has been earning in foreign currency. The answer is to earn more, not just borrow more.