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Twin pressures of dwindling reserves and rising foreign debt repayment
Economic reporter
8 May 2023, Monday mzamin
Although the expenditure has been reduced by controlling the import, the dollar crisis is not decreasing, but it is increasing. Again, Bangladesh Bank has sold a record 12 billion dollars to commercial banks in the current financial year to meet import expenses. This has put a strain on foreign exchange reserves.
Out of this, the export income decreased by 16 and a half percent and the remittance decreased by almost 17 percent, this pressure is increasing further. As a result, the pressure on reserves will increase. All in all, anxiety about foreign debt repayment is increasing gradually. In the past few years, loans taken from China, Russia and India with tough conditions have added to this anxiety.
Bangladesh's foreign borrowing and status has been increasing rapidly over the past few years. This debt is increasing in both public and private sectors. In the last two financial years (2020-21 and 2021-22), the country's external debt has increased to a record amount. And in a decade, foreign debt increased by 227 percent.
Pakistan and Sri Lanka are in danger due to the rapid increase in foreign debt. Although Bangladesh is not in danger in this case; However, experts believe that it is not completely risk-free. Apart from this, export earnings and remittances have decreased. Due to the decrease in income in these two sectors, the foreign exchange management is under increasing pressure.
At the same time, the value of the dollar is increasing and foreign exchange reserves are decreasing further. Those concerned said that there was no problem in repayment as the foreign debt that Bangladesh had previously was within its means. But recently, the country is facing a mega crisis while implementing mega projects by taking mega loans.
Meanwhile, Bangladesh Bank is going to pay the Asian Clearing Union (ACU) import bill of 1.18 billion dollars for the period of March-April this month. Apart from this, the government has decided to increase the import of oil, gas, and coal. This will increase the cost of foreign exchange. Reserves fell to $3,960 million on Tuesday. After paying the Aku bill, the reserves will fall below $30 billion. Earlier, at the end of the 2015-16 financial year, the reserve was 30.35 billion dollars. All in all, the pressure on reserves will increase.
Bangladesh Bank Executive Director and Spokesperson Majbaul Haque said that dollars are sold from reserves to meet import demand. Banks are given dollars after verification. The country's reserves will fluctuate, this is a natural phenomenon. Similarly, the Aku payment in May is also routine work of the central bank. There is nothing to discuss about it separately.
Foreign debt is $96.25 billion
According to Bangladesh Bank sources, the government has restricted the opening of letters of credit (LC) for several months. This has reduced dollar spending on imports and borrowing rates. But even then, foreign debt is not being reined in. Rather, the foreign debt has increased by 6 billion dollars in the last year. Foreign debt increased to 96.25 billion dollars, which was $90.79 billion a year ago.
Out of this huge amount of foreign debt, $71.94 billion or 74 percent is with the government, and the remaining 26 percent, or 24.31 billion dollars have been borrowed by the private sector of the country. However, by the end of this year, the amount of foreign debt will be $115 billion. And at the end of 2024, the debt amount will stand at $130 billion.
According to the information, the total foreign debt taken by the government is $71.94 billion. The remaining $24.31 billion debt went to the private sector. Most private sector commercial loans are buyers' credit, which are repayable within a year. According to Economic Relations Department (ERD) sources, a total of $2.78 billion has to be repaid in the current financial year 2022-23. Out of this, in the first 6 months of the financial year, $1.12 billion of debt has been repaid.
A $4.02 billion will have to be repaid FY2024 - 25. And in the financial year 2029-30, debt repayment will cost a maximum of $5.15 billion. Earlier in the 2016-17 fiscal year, the government had to repay only $1.17 billion of foreign debt. Since then it has been increasing every year. In the fiscal year 2021-22, the amount was $2.01 billion dollars. Through this, the annual debt repayment for the first time in the last financial year exceeded 200 million dollars.
An agreement was reached to take a loan of $36.28 billion dollars from Russia, China, and India. Among them, China is giving $17.54 billion dollars in 12 projects, Russia providing $11.38 billion dollars for the Rooppur power plant and India giving $7.36 billion dollars in three Lines of Credit (LoC).
However, due to the complications caused by the war in Ukraine, it is not possible to repay the loan of the Rooppur project. As a result, $330 million in principal and interest on the two loans remains unpaid, ERD said. While World Bank, ADB has a loan repayment period of 32 to 35 years. But after the grace period, China and Indian loans will have to be repaid in 15 to 20 years.
The former lead economist of the Dhaka office of the World Bank. Zahid Hossain said, there is pressure ahead. Because the current debt must be paid by next June. Or renew the loans. Otherwise, all must be paid together. Then there will be pressure on the foreign exchange market.
A few days ago, CPD Special Fellow Dr. Debapriya Bhattacharya said that in the midst of the ongoing economic crisis, the push to pay the foreign debt of some big projects is starting this year. It will continue to increase day by day. By 2027 it will reach its maximum level. Therefore, if not careful, there is a danger of economic disaster.
Note that the total cost of 20 mega projects in the country is 70 billion dollars. Of this, $43 billion is foreign debt. At the rate of implementation of the projects, many will not be completed even by 2030. But, the foreign debt repayment of these projects will start in 2024. The first pressure comes from China. Then Russia and then Japan. If unprepared, there is a danger of economic disaster.
According to the data analysis of the Economic Relations Department, compared to 2020-21, Bangladesh's per capita foreign debt increased from Tk 4,271 to Tk 5,682 in the 2021-22 fiscal year. That is, per capita debt has increased by 1,411 takas in just one year.
According to the report of the International Monetary Fund (IMF), currently, Bangladesh owes now $72.29 billion dollars to a few countries and organizations. According to this report, the amount of debt of Bangladesh from organizations like the World Bank, and IMF is $34.90 billion dollars. On the other hand, the accumulated loans from bilateral or different countries stood at $21.67 billion dollars.
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