An economic shock is looming when time comes to repay mega projects
The cost of these mega projects is about to reach $70 billion, of which, around 61% or $43 billion is part of foreign debt that Bangladesh mostly owes to Russia, Japan and China
Bangladesh may face major shocks in 2024 and 2026 in regards to its foreign debt repayment of 20 major mega projects, said Dr Debapriya Bhattacharya, distinguished fellow of the Centre for Policy Dialogue (CPD), and convenor at Citizen's Platform for SDGs, on Thursday.
The cost of these mega projects is about to reach $70 billion, of which, around 61% or $43 billion is part of foreign debt that Bangladesh mostly owes to Russia, Japan and China, he also said.
In that regard, there is a need of defining a repayment strategy including rescheduling of imminent payments, given the current account and foreign reserve status, Debapriya said during a virtual discussion session with journalists on the day.
According to the CPD distinguished fellow, very close monitoring will be paramount in keeping the debt situation in check as debt service liabilities (DSL) will increase from the current 1% of GDP to 1.5% to 2%.
The debt repayment pressure will come in 2024 firstly from China, and later from Russia, he noted.
Bangladesh has to repay the most debt to Russia, Japan and China, with 36.6% of the total debt repayment owed to Russia, 35% to Japan and 21% to China, as calculated by the veteran economist.
There are a total of 40 loan packages and 5 grants for the 20 mega projects amounting to $32.26 billion, of which, 37 loan packages kick off repayment by 2030, amounting to $28.43 billion.
Additionally, about 7 loan packages out of 37 are semi and non-concessional owed to the Exim Bank of China and Russia, amounting to $17.78 billion.
The Russian loans are due for repayment in 2020 (1 loan) and 2026 (1 loan) while the Chinese loans are due for repayment in 2021 (1 loan), 2024 (2 loans), 2025 (1 loan) and 2026 (1 loan).
In the last decade (2009-2021), Bangladesh opted for a big push in public sector investment in infrastructure projects based on foreign financing, with most of the projects having been initiated in the period 2014-2018.
Sectoral orientation of this big push was majorly physical infrastructure, communication and energy projects, with marginal investments in mega social projects, health and education.
Lessons to learn
Global experience suggests lack of quality feasibility studies, coordination failure, implementation challenges (corruption, cost and time overrun) as well as macroeconomic weaknesses led to the failure of many mega projects, causing a huge economic loss in developing countries.
Lack of transparency and accountability deficit along with delay in implementation shortfall has ultimately affected the reserve balance – both domestic and external.
All these potential threats are relevant for Bangladesh in the context of the status of the megaprojects according to the think tank.
According to Dr Debapriya Bhattacharya, the review of terms and conditions of foreign loans for the top twenty mega projects are favourable as there are a good number of concessional loans along with grants.
But the total investments of the mega projects may be constrained by the delivery capacity of the concerned institutions.
It seems that the mega projects have come at the expense of fiscal allocations for social sectors (health, education and social protection). This trade-off has become more acute in the context of stagnation tax-GDP ratio, Debapriya further noted.
He also said that since 2009, there has been a kind of national consensus on taking up big projects and politicians show interest in it as development can be seen physically if big projects are implemented.
Even though 20 projects are scheduled to be completed by 2028, Debapriya said that it will not be possible to complete all of them in the current decade.
He also pointed out the lack of transparency and accountability in project implementation.