The back-and-forth between AK Abdul Momen and Subrahmanyam Jaishankar
Indian Minister of External Affairs Subrahmanyam Jaishankar (L) and Minister of Foreign Affairs Bangladesh AK Abdul Momen. Illustration: TBS
Indian Minister of External Affairs Subrahmanyam Jaishankar (L) and Minister of Foreign Affairs Bangladesh AK Abdul Momen. Illustration: TBS
Minister of Foreign Affairs Bangladesh AK Abdul Momen asked the panel at the 58th Munich Security Conference:
While India had offered Lines of Credit and Japan had also helped with infrastructure financing, incoming loans have been declining, and it is China that has come forward with a basket of money and aggressive, affordable proposals.
It was hard to decide what to do, given that with more development in Bangladesh, people are demanding more infrastructure.
We need more funding from our development partners, and that, unfortunately, comes with a lot of strings attached and that becomes very difficult.
Today, our largest loans are from the World Bank and the IMF and the ADB, but also, we are trying to get some funding from others because the need for the development process is very high. Is there an easy way out?"
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Indian Minister of External Affairs Subrahmanyam Jaishankar said in response:
We have now seen countries, including in our region, being saddled with large debts. We have seen projects which are commercially unsustainable: airports where an aircraft doesn't come, harbours where a ship doesn't come.
Countries seeking loans should worry about unsustainable infrastructure projects like airports and ports that are empty.
It's obviously in the interest of the consumer country concerned, but it's also in the interest of the international community because unsustainable projects don't end there. Often the next is, debt becomes equity, and that becomes something else.
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Sri Lanka has been dependent on China, our sources are diversified
Economist Professor Mustafizur Rahman, Distinguished Fellow at CPD, evaluates the Indian Foreign Minister’s caution to Bangladesh at Munich Security Conference about large debts
Professor Mustafizur Rahman. Illustration: TBS
Professor Mustafizur Rahman. Illustration: TBS
There is a large deficit between the rising infrastructural demands in Bangladesh and our capacity to address them. This deficit now has to be covered with foreign aid.
In this circumstance, all the routes matter to us. While securing loans, however, we have to carefully look at the terms and conditions, interest rates, maturity periods, grace period. We also have to explore if there are any upfront payment issues and other conditionals.
To get the best outcome, we have to make decisions based on these evaluations. Also, we have to actively search where we can get favourable terms.
In that light, what the Indian Foreign Minister cautioned about large debts – there are plenty such examples in Latin America – and there is nothing to argue about. It is not only Bangladesh, every country should evaluate the factors I mentioned while taking loans for infrastructural projects.
What the Indian FM said is about the supply side of debt, but on the demand side, the recipient country should evaluate whether we are prioritising the projects appropriately and correctly; whether the projects are aligned to our long term goals, if they are well integrated with other parallel investments, and whether it is being implemented with good governance on time.
These are the responsibilities of a recipient country.
So debt doesn't only arise because of the supply side conditionality. It also arises because of the weakness of the implementing country. This caution, as the Indian FM said, can originate from both in terms of where the loans are accessed from, and in terms of the quality of implementation.
However, I don't think comparing the situation of Bangladesh with Sri Lanka is right. Sri Lanka has largely been dependent on China. But Bangladesh has more diversified sources. I think this diversification is important; there are Japan, China, India LOC, World Bank, etc here. Both in terms of bilateral and multilateral aspects, our sources are diversified.
Making comparisons with Sri Lanka would not be right, but Sri Lanka's lesson is important for Bangladesh. The lesson is – while taking such loans we should consider if they are prioritised, consistent with the long term plan, that the positive outcomes expected from the projects in terms of other investments are well taken care of, also the issues of private investments are considered.
If these considerations are ignored, you could fall into a debt trap like Sri Lanka – this is the lesson. We are not comparable with Sri Lanka, but we should learn from them what we should do and what we should not.
The investments from both China and India are necessary for long term development, middle-income journey, increasing our competitiveness and incentivising our private sectors.
In our long term projects, the risks increase when we come across time and cost escalation, when governance is not right; and when there is no accountability during implementing the projects. It becomes risky when we cannot go through the negotiations and implementations properly.
We have seen that some of our project costs are increasing. As a result, we will have to pay extra tolls, our service charge will increase and our private sector will lose competitiveness. So, we should be careful that these projects are implemented with good governance, with accountability and transparency.
If we are not careful enough, we will not have the returns we expect in terms of internal rate of return (IRR), financial return and economic rate of return.
Since these are a huge amount of money, debt servicing is essential. If our returns are good, we can ensure debt servicing. Bangladesh's debt servicing, outstanding total debt as a percentage of the GDP are still at a tolerant level.
But now we are taking a lot of loans since there is demand in the economy. We have to be alert because the loan costs are high because of our middle-income journey.
For example, we used to receive the World Bank loan at 0.75 percent. Now Bangladesh is not an IDA [International Development Association] country. It is now a blended country – blending of concessional and non-concessional loans.
After a few years, it will become a non-concessional country. Our cost of borrowing will increase. So we have to be careful so that we can mitigate the risk factors. If we are careful enough, we can avoid debt traps like Sri Lanka.
In terms of the Indian LOC, we have the issues of procurement, infrastructural development, connectivity, capacity building, etc. Here the implementation is getting delayed. The first line of credit was in 2010, the second in 2015 and the third in 2018. But till now only a part of the first and second LOC have been implemented.
We had big hopes with Ashuganj International River Port that will connect North East, Aratola etc. But we couldn't develop it yet.
As a result, we are being deprived of the returns that we might have. Also, we needed to implement the motor vehicle agreement.
See we have a coastal shipping agreement, but we cannot implement the LOCs in accordance with these good policy initiatives.
I believe that this is a large weakness in Bangladesh-India LOC. Although there is a high-level commission to address these issues, we don't see any tangible acceleration yet. And if they are not accelerated, the costs of the projects will increase as it will take re-negotiation, and more time will be wasted – we will fall into a vicious circle.
Consequently, the special economic zone and private sector investments will see a lack of alignment. The private sector will not be able to reap the benefits. Our competitiveness, export diversification, market diversification and all other contributions it could make is being delayed.
Professor Mustafizur Rahman is an economist and a Distinguished Fellow at CPD.
Indian Minister of External Affairs Subrahmanyam Jaishankar was clearly referring to Sri Lanka when he spoke about airports and harbours. So, what really happened in Sri Lanka? We compiled the voices from all sides.
India is misrepresenting China's Belt and Road Initiative aid as a 'debt trap': Global Times
On 21 February 2022 Global Times, a Chinese newspaper under the People's Daily, published an article titled India's 'debt trap' slandering against Chinese BRI aid is laughable written by Wang Yi.
Here is an excerpt from that article.
During the 2022 Munich Security Conference (MSC) which concluded on Sunday, Indian External Affairs Minister Subrahmanyam Jaishankar warned countries of the "debt trap" created by Chinese assistance, saying "We have seen countries, including in our region, being saddled with large debts."
Jaishankar cautioned countries on accepting China's financial assistance.
However, Bangladesh's foreign minister Abul Kalam Abdul Momen, who attended the discussion, told a different story about China's help. It is the aid from other partners that came with a lot of strings, Momen said.
India's anti-China forces have long played a role in the slandering campaign against the mutually beneficial economic cooperation between China and South Asian countries. Jaishankar's latest hypocritical warning about a "debt trap" is nothing but another geopolitical gimmick.
Leaders of many Asian countries have repeatedly noted that China's assistance has served to greatly boost their economic growth and improve their people's livelihood.
China is the top foreign investor in Bangladesh's economic zones, the Financial Express reported, citing data from the Bangladesh Economic Zones Authority (BEZA). Some politicians in India apparently regard South Asian countries such as Bangladesh and Sri Lanka as India's spheres of influence and regard China as India's geopolitical rival.
For the same geopolitical purpose and hostility against China, India has also refused to join regional economic cooperation and free trade agreements such as the Regional Comprehensive Economic Partnership (RCEP).
Yet, Indian officials' political manipulations like the "debt trap" slandering cannot hijack the economic laws and the trend toward greater economic integration and globalisation. During a speech at the MSC, Chinese State Councillor and Foreign Minister Wang Yi warned of the dangers of division and confrontation in the world.
It is hoped that India can give up regional meddling and actively participate in Asian economic cooperation to boost regional prosperity in the post-Covid era.
How China got control of a Sri Lankan port: The New York Times
In an article published on 22 September 2018 in The New York Times titled How China Got Sri Lanka to Cough Up a Port, Maria Abi-Habib wrote about how China strategically took the reins of the Hambantota Port from Srilanka.
Here is an excerpt from that article.
Every time Sri Lanka's president, Mahinda Rajapaksa, turned to his Chinese allies for loans and assistance with an ambitious port project, the answer was yes.
Yes, though feasibility studies said the port wouldn't work. Yes, though other frequent lenders like India had refused. Yes, though Sri Lanka's debt was ballooning rapidly under Rajapaksa.
Over years of construction and re-negotiation with China Harbour Engineering Company, one of Beijing's largest state-owned enterprises, the Hambantota Port Development Project distinguished itself mostly by failing, as predicted. With tens of thousands of ships passing by along one of the world's busiest shipping lanes, the port drew only 34 ships in 2012.
And then the port became China's.
The transfer gave China control of territory just a few hundred miles off the shores of a rival, India, and a strategic foothold along a critical commercial and military waterway.
Months of interviews with Sri Lankan, Indian, Chinese and Western officials and analysis of documents and agreements stemming from the port project present a stark illustration of how China and the companies under its control ensured their interests in a small country hungry for financing.
• During the 2015 Sri Lankan elections, large payments from the Chinese port construction fund flowed directly to campaign aides and activities for Rajapaksa, who had agreed to Chinese terms at every turn and was seen as an important ally in China's efforts to tilt influence away from India in South Asia. The payments were confirmed by documents and cash checks detailed in a government investigation seen by The New York Times.
• Though Chinese officials and analysts have insisted that China's interest in the Hambantota Port is purely commercial, Sri Lankan officials said that from the start, the intelligence and strategic possibilities of the port's location were part of the negotiations.
• Initially moderate terms for lending on the port project became more onerous as Sri Lankan officials asked to re-negotiate the timeline and add more financing. And as Sri Lankan officials became desperate to get the debt off their books in recent years, the Chinese demands centred on handing over equity in the port rather than allowing any easing of terms.
• Though the deal erased roughly $1 billion in debt for the port project, Sri Lanka is now in more debt to China than ever, as other loans have continued and rates remain much higher than from other international lenders.
Estimates by the Sri Lankan Finance Ministry paint a bleak picture: This year, the government is expected to generate $14.8 billion in revenue, but its scheduled debt repayments, to an array of lenders around the world, come to $12.3 billion.
Myths about the Hambantota Port Deal: The Diplomat
On 1 January 2020, Umesh Moramudali wrote an article in the Washington-DC-based The Diplomat on the myths surrounding Hambantota Port titled The Hambantota Port Deal: Myths and Realities.
Here is an excerpt from that article.
Newly elected Sri Lankan President Gotabhaya Rajapaksa has raised concerns about the Hambantota Port lease agreement with China that was signed in 2017 by the previous government. Rajapaksa clarified that his government is not hoping to amend the commercial terms of the agreement.
The Hambantota Port deal is still widely cited to highlight China's "debt trap" phenomenon. It cannot be interpreted as a debt-equity swap or the Chinese cancelling debt in exchange for control of the port. In this case, there was no cancellation of the debt.
Instead, a 70 percent stake of the port was leased to China Merchants Port Holdings Company Limited (CM Port) for 99 years for $1.12 billion.
At the time of entering into the lease agreement, Hambantota Port was valued at $1.4 billion and CM Port invested $1.12 billion as per the terms of the agreement.
A common and popular myth is that Sri Lanka was unable to pay off the loan obtained to construct the port, thus it was handed over to China. Some of the loans were obtained at interest rates as high as 6 percent while some were concessionary loans. The total sum of these loans amounted to $1.263 billion.
The often-quoted "port deal" was actually a lease agreement clearly separate from the loans obtained for the purpose of constructing the port, not to repay China. Instead, it is more of a reflection of the external sector crisis Sri Lanka is facing.
Dr Dushni Weerakoon and Professor Sisira Jayasuriya also highlighted that Sri Lanka's debt problem is not caused by China — successive Sri Lankan governments borrowed from international markets despite the persistent fiscal and current account deficits, resulting in a vicious cycle when debt repayments came due. However, these facts do not justify the Mahinda Rajapaksa government's decision to construct the port using foreign loans obtained at higher interest rates.
Although port operations started in 2011, following the completion of phase one of the project, Hambantota port was still incurring losses by 2016. The debt repayment now is the responsibility of the General Treasury, the revenue generated by the port is still a vital factor given the fiscal constraints of the government.
