Bangladesh's foreign debt has surpassed $100 billion, reaching $100.64 billion by the end of last December, Bangladesh Bank revealed. This marks a slight increase from approximately $99 billion six months ago, indicating a marginal rise of $1 billion in foreign debt during this period, the central bank said last Thursday.
Despite this escalation, both the central bank and the government remain confident about the situation, saying that there is room for further borrowing.
Md Mezbaul Haque, executive director and spokesperson of Bangladesh Bank, said: “The amount of foreign debt is less than $100 billion, but it is not much compared to the size of the country's GDP. External debt is about 23% of total GDP—meaning we still have a lot of external borrowing capacity.”
According to the IMF's sustainability threshold, foreign debt should be less than 40% of the GDP.
The Finance Ministry's Economic Relations Department (ERD) has revealed that key lenders to Bangladesh in the fiscal year 2022-23 were the World Bank, Japan, Asian Development Bank (ADB), and China, with Chinese financing witnessing significant growth recently.
The government is implementing several big projects with foreign funding. These include the Rooppur Nuclear Power Plant, Padma Bridge Rail Link Project, metro rail (Line-6), third terminal of Hazrat Shahjalal International Airport, Karnaphuli Tunnel, Matarbari Coal Power Plant, and Chittagong-Cox's Bazar Railway.
Beyond foreign debt, the government also grapples with debt from various domestic sources, with the International Monetary Fund (IMF) reporting government debt at $147.8 billion by the end of the last fiscal year.
The total domestic debt for the financial year 2022-23, according to Bangladesh Economic Survey 2023, amounted to Tk17,87,158.6 crore as of February 2023.
Dr Ahsan H Mansur, executive director of Policy Research Institute (PRI), said it will be difficult for the government to repay the debt.
“The pressure to pay installments on foreign debt will increase from this year. If the supply of dollars does not increase, the situation can take a very bad turn,” he explained.
Saying that it is a big concern for the government, Ahsan H Mansur said: “To deal with the situation, it is important to stop the supplier credit being taken from China and Russia.”
The eminent economist said that simply analyzing the foreign debt-to-GDP ratio is inadequate when assessing the nation's economic reality. Instead, Bangladesh needs to compare debt levels with its government revenue.
While a debt-to-revenue ratio of 200-250% is generally deemed acceptable, Bangladesh's ratio exceeds 400%, Ahsan H Mansur said.
According to reports, at the end of 2022-23 fiscal year, Bangladesh’s debt-to-revenue ratio stood at 461%.
Dr Ahsan H Mansur said this number is similar to neighbouring countries like India.
He said that it is not possible to pay this debt even by reducing government expenditure, and the only solution is raising revenue generation.
“Fundamental reforms in the revenue sector are now imperative. An innovative system must be implemented to minimize direct contact between revenue payers and government officials. This will not only streamline processes but also effectively curb irregularities within the sector,” he mentioned.
“If revenue collection can be streamlined now, we will see the results after 3-5 years,” Dr Mansur added.
In this context, Zahid Hossain, former chief economist of the World Bank Dhaka office, suggested two avenues for debt repayment: bolstering government revenue and rationalizing expenditure to minimize waste and corruption.
However, he cautioned against excessive reliance on refinancing with new loans, emphasizing the need for sustainable solutions.
With the loan installments of many mega projects set to start this year, experts fear a pressure on foreign debt repayment amid a dollar crisis exacerbated by stagnant remittances and export earnings.
In this context, Dr Mustafizur Rahman, distinguished fellow at the Center for Policy Dialogue (CPD), said that while returns from these loans are received in taka, the depreciating value of the taka against the dollar escalates the cost of foreign loans.
“So, one should be careful about expensive foreign loans now, so that there is no problem in repaying the loans,” Dr Mustafizur Rahman added.
According to data from the central bank, of the total loan amount of $100.6 billion, $79.69 billion has been acquired by the public sector, with the remaining portion taken by the private sector.
Notably, 85% of these loans are long-term, while the remaining 15% are short-term.
As of the end of last December, the foreign debt component of the private sector stood at $20.95 billion, slightly lower than the $21.28 billion recorded in September of the same year.
Over the years, Bangladesh's foreign debt has more than doubled, with per capita foreign debt rising from just over $257 eight years ago to $592 at the end of last December.
