The combination of grants and loans to lesser well-off nations by UN organizations, World Bank, IMF and other multilateral organizations and countries have arguably made a difference in education, infrastructure development, health, and a host of other critical areas. That and budgetary support for flagging economies have also compounded the debt burden.
Standard debt per GDP is an agreed number. Most countries either have their own debt limits or follow internationally acceptable ones. The spanner in the works, after the massive jolt from the 2008 meltdown has been the legacy of Covid-19 and now, the war in Ukraine.
Western countries burst their debt redlines more than a year ago, even before having had to commit to the war chest to prop up Volodomir Zelensky’s bedraggled nation. Initially it was about armaments. Now, Ukraine needs $5 billion a month just to keep going.
When or if it’s over, there will be massive bilk for rebuilding the ravaged state. Unlike Syria, Iraq, and Libya, Ukraine will have sympathetic shoulders to lean on. Recuperation measures for countries trying to balance books have been higher taxes, hard budget cuts, and especially aid.
In favourable times such aid was welcomed by electorates. Not any more; not when mortgages go up, pensionable years are reduced, and critical service providers have to walk out and strike. With the export-import equation going for a toss, developing countries have had to cough up $5Obn in repayments. This they can ill afford.
Countries unwilling or unable to spread their export offerings versus prioritizing imports are tightening belts to begin the repayment cycles beginning 2024 -- Bangladesh being just one of them. Argentina, well known for default, is asking for yet more money. African countries pleaded with President Vladimir Putin to ensure the grain supply chain isn’t disrupted. President Putin listened to them.
Ukraine produces 30% of World grain demand and is unable to export due to blockades of its ports. With Russia having baulked on renewing the UN brokered limited grain export from Ukraine it was only a time before a new mayhem arose.
Growing numbers of countries are restricting or banning rice exports. Other agricultural commodity exporters have had bad harvests with the net result being shortages and high prices. Farmers in Bangladesh, encouraged by the unwillingness of governments to come down hard on profiteering, are joining the bandwagon of brokers making obscene profits.
Inflation refuses to budge downwards even in the face of time-trusted bank rate increases. According to a World Food Programme survey 68% of Bangladeshis are having to sell assets big and small or borrow to put meals on the table. The upcoming Commonwealth Summit and COP-28 will be debating the issue of debt. The promised $100bn climate change adaptation costs are likely to be quietly shelved.
The World Bank and IMF have so far held their grounds on wiping out debts. Recovery in cases such as Argentina, Greece, Sri Lanka, and Pakistan are unlikely. These debts, exacerbated by albeit low-interest, shouldn’t have been allowed to grow to the levels they have. Geo-political considerations have forced the hand and now there is a clear split between cosy-chest holding countries being seen as the saviour. Sooner than later the core issue will have to be faced.
Bangladesh Bank’s Governor has expressed ire at so much money being available outside the banking system. He shouldn’t be surprised. Rather he should spearhead at regaining depositor confidence by taking hard action to recover unpaid loans, correcting the maladies of abominable lapses in processing loans, and instead transferring such benefits to depositors.
Fancy accounting and such machinations have led to Donald Trump being accused of sexing-up his assets and net worth to obtain favourable loans. The United Kingdom, the haven of money-laundering, has gone silent after an initial broadside against Russian oligarchs. The list grows longer. Swiss banks are reporting downturns in money deposits as many scramble to invest in property in struggling economies at attractive rates.
Bangladesh’s real-estate sector too, is rebounding along similar lines. That in spite of fairly crippling and unreasonable taxation on registration costs that adds to an already unethical application of VAT and Advance Income Tax that flies in the face of the intent of VAT and contrarily turns out to be tax on tax.
That the Finance Minister has lambasted those that question the soundness of the economy is an indication that these anomalies won’t be looked at soon. Mind you, it has been the same Minister who informed Parliament that the government doesn’t have measures to prevent capital flight.
Mahmudur Rahman is a writer, columnist, broadcaster, and communications specialist.
