What is the future of Bangladesh’s debt-ridden macroeconomy?

[Black_cats]

What is the future of Bangladesh’s debt-ridden macroeconomy?​

VISUAL: REHNUMA PROSHOON

Bangladesh's internal and external debt seem to be skyrocketing. As the grace period for the megaprojects is nearing the end, foreign debt services are rising at an alarming rate. Moreover, the country is taking loans from the banking system. Being criticised for excessive debt from commercial banks, the government is now taking loans from the central bank, which in a sense is printing new money. This injection of new money into the economy is adding to the high inflation. So, we need to ask this now: what is the future of Bangladesh's debt-ridden economy?

The burden of rising debt​

Data obtained from the Bangladesh Bank shows that the country's total external debt increased to nearly $96.25 billion at the end of December 2022 – of which $71.9 billion belong to the government, and the rest to the private sector. In just 10 years, the country's outstanding foreign debt more than tripled, says a World Bank report.

In FY17, Bangladesh's debt service on external debt was $2.28 billion, which rose to $5.69 billion in FY21, according to the World Bank. In just four years, it grew 2.5 times. The official narrative says the debt-GDP ratio is still within the tolerable limit. But the fact is Bangladesh's GDP data is questionable – in recent years, the GDP data has been inflated by just changing the base year. Moreover, the country does not adjust inflation and deflation of the taka against the US dollar. According to the Bangladesh Bureau of Statistics (BBS), the country's per capita income fell one percent year-on-year to $2,765 in 2022-23. This is absurd, as the taka devalued at least by 21 percent in just one year. Moreover, while a recently released World Bank report says food prices have increased by 33 percent in one year in Bangladesh, the BBS still shows just nine percent inflation. Hence, there are significant doubt and concerns about the integrity of the country's official data.

For example, taking the 21 percent devaluation of the taka into consideration, the 11.36 percent inflation (Sanem data) and a growth of 6.1 percent (World Bank projection) put the real GDP size at $339 billion, not $460 billion. The current inflation in Bangladesh may actually be much higher than official projections, so the real GDP would be even lower. Meanwhile, the government has taken new loans from the IMF, World Bank, Jica, ADB, etc. Moreover, the deferred LCs of commercial banks turned into an additional burden of short-term debts. Overall, in my estimate, the total foreign debt position of the country may have crossed 30 percent of the GDP – beyond the safe limit of 25 percent. Together with internal loans, the total debt-GDP ratio would then exceed 50 percent.

In the past two years, Bangladesh's foreign debt has increased more than $27 billion. While Pakistan's external debt has increased by 114 percent and Sri Lanka's by 61 percent in a decade, Bangladesh's external debt has increased by 227 percent. Bangladesh is definitely on the risky path of foreign debt.

The government is also suffering from a severe shortage of money. In April, the government borrowed a record amount of Tk 29,697 crore from banks in the current fiscal year. In addition to this, there are significant external debts. According to the Bangladesh Bank data, between July and April, the government borrowed a total of Tk 82,057 crore from the banking system, of which the central bank provided around 80 percent. If you ask economists, they will readily admit that this is new money injection. This is simply alarming. According to the central bank, the government borrowed a total of Tk 3.56 lakh crore from the country's banking accounts by April. Of that amount, Tk 2.22 lakh crore were borrowed from commercial banks.

To secure the country's economic future, the government must reduce its operational expenses and control corruption, adopt prudent fiscal and monetary policies, diversify the economy, diversify export, secure new and skilled manpower markets abroad, attract foreign investment, and, last but not the least, ensure efficient utilisation of borrowed funds. Only an accountable administration and a representative democracy can facilitate that. It is imperative to strike a balance between the need for infrastructure development and the sustainable management of debt to safeguard long-term economic stability and prosperity for the people of Bangladesh.

This practice can strain the banking system and hinder its ability to support private sector lending, which is crucial for sustainable economic growth. Furthermore, the need to borrow from the central bank to cover the financing gap raises concerns about the creation of new money, leading to inflationary pressures.

These escalating debt levels pose serious risks to Bangladesh's economic stability and growth prospects. Rapidly increasing external debt service payments indicate that a substantial portion of the country's foreign currency earnings is diverted towards servicing existing obligations. This trend can strain the balance of payments and reduce available resources for vital sectors like healthcare, education, and infrastructure development.

One of the primary drivers of the mounting debt burden is the completion of megaprojects, power and energy sector debts, dues and the capacity charge payments, which were initiated to stimulate economic growth and enhance infrastructure. While some of these projects may have long-term benefits, the immediate debt servicing requirements are challenging the government's financial capacity.

Inflationary pressures and economic consequences​

The injection of new money via borrowing from the central bank is adding to the inflationary pressure in Bangladesh. As the money supply expands without a corresponding increase in production and output, the excessive liquidity can further drive up prices and erode the purchasing power of the local currency. High inflation can hinder economic stability, deter foreign investment, and create hardships for the general population, particularly low-income individuals and vulnerable groups.

The government should prioritise efficient utilisation of borrowed funds to ensure maximum returns on investment. Implementing robust project management frameworks, promoting transparency and accountability, and reducing corruption can help optimise the benefits of megaprojects while minimising financial risks. Enhancing tax compliance, broadening the tax base, increasing FDI, and reducing tax evasion in favour of rich people can provide sustainable revenue streams to finance public expenditure and reduce the need for excessive borrowing. Moreover, the government must improve its public and fiscal data integrity.

To secure the country's economic future, the government must reduce its operational expenses and control corruption, adopt prudent fiscal and monetary policies, diversify the economy, diversify export, secure new and skilled manpower markets abroad, attract foreign investment, and, last but not the least, ensure efficient utilisation of borrowed funds. Only an accountable administration and a representative democracy can facilitate that. It is imperative to strike a balance between the need for infrastructure development and the sustainable management of debt to safeguard long-term economic stability and prosperity for the people of Bangladesh.

Faiz Ahmad Taiyeb is a Bangladeshi columnist and writer living in the Netherlands. Among other titles, he has authored Fourth Industrial Revolution and Bangladesh and 50 Years of Bangladesh Economy.

What is the future of Bangladesh’s debt-ridden macroeconomy?

The government should prioritise efficient utilisation of borrowed funds to ensure maximum returns on investment.

www.thedailystar.net

 

[SoulSpokesman]

Seems to be anti SHW/BAL propag@ndu

Regards

 

[bluesky]

Seems to be anti SHW/BAL propag@ndu

Regards

This writer is a filth. He does not see how Hasina Bibi is planning to bring Highly Developed Status for BD in 2041. BD will gradually supersede the economies of Taiwan, Hongkong, Singapore, Korea, and then Japan and China. All by your pet Hasinamic theories.

You should write another economic prose to praise our great Hasina Bibi. Bloody Hotentot Idiot coming to destroy every thread.

 

[bluesky]

What is the future of Bangladesh’s debt-ridden macroeconomy?​

VISUAL: REHNUMA PROSHOON

Bangladesh's internal and external debt seem to be skyrocketing. As the grace period for the megaprojects is nearing the end, foreign debt services are rising at an alarming rate. Moreover, the country is taking loans from the banking system. Being criticised for excessive debt from commercial banks, the government is now taking loans from the central bank, which in a sense is printing new money. This injection of new money into the economy is adding to the high inflation. So, we need to ask this now: what is the future of Bangladesh's debt-ridden economy?

The burden of rising debt​

Data obtained from the Bangladesh Bank shows that the country's total external debt increased to nearly $96.25 billion at the end of December 2022 – of which $71.9 billion belong to the government, and the rest to the private sector. In just 10 years, the country's outstanding foreign debt more than tripled, says a World Bank report.

In FY17, Bangladesh's debt service on external debt was $2.28 billion, which rose to $5.69 billion in FY21, according to the World Bank. In just four years, it grew 2.5 times. The official narrative says the debt-GDP ratio is still within the tolerable limit. But the fact is Bangladesh's GDP data is questionable – in recent years, the GDP data has been inflated by just changing the base year. Moreover, the country does not adjust inflation and deflation of the taka against the US dollar. According to the Bangladesh Bureau of Statistics (BBS), the country's per capita income fell one percent year-on-year to $2,765 in 2022-23. This is absurd, as the taka devalued at least by 21 percent in just one year. Moreover, while a recently released World Bank report says food prices have increased by 33 percent in one year in Bangladesh, the BBS still shows just nine percent inflation. Hence, there are significant doubt and concerns about the integrity of the country's official data.

For example, taking the 21 percent devaluation of the taka into consideration, the 11.36 percent inflation (Sanem data) and a growth of 6.1 percent (World Bank projection) put the real GDP size at $339 billion, not $460 billion. The current inflation in Bangladesh may actually be much higher than official projections, so the real GDP would be even lower. Meanwhile, the government has taken new loans from the IMF, World Bank, Jica, ADB, etc. Moreover, the deferred LCs of commercial banks turned into an additional burden of short-term debts. Overall, in my estimate, the total foreign debt position of the country may have crossed 30 percent of the GDP – beyond the safe limit of 25 percent. Together with internal loans, the total debt-GDP ratio would then exceed 50 percent.

In the past two years, Bangladesh's foreign debt has increased more than $27 billion. While Pakistan's external debt has increased by 114 percent and Sri Lanka's by 61 percent in a decade, Bangladesh's external debt has increased by 227 percent. Bangladesh is definitely on the risky path of foreign debt.

The government is also suffering from a severe shortage of money. In April, the government borrowed a record amount of Tk 29,697 crore from banks in the current fiscal year. In addition to this, there are significant external debts. According to the Bangladesh Bank data, between July and April, the government borrowed a total of Tk 82,057 crore from the banking system, of which the central bank provided around 80 percent. If you ask economists, they will readily admit that this is new money injection. This is simply alarming. According to the central bank, the government borrowed a total of Tk 3.56 lakh crore from the country's banking accounts by April. Of that amount, Tk 2.22 lakh crore were borrowed from commercial banks.





This practice can strain the banking system and hinder its ability to support private sector lending, which is crucial for sustainable economic growth. Furthermore, the need to borrow from the central bank to cover the financing gap raises concerns about the creation of new money, leading to inflationary pressures.

These escalating debt levels pose serious risks to Bangladesh's economic stability and growth prospects. Rapidly increasing external debt service payments indicate that a substantial portion of the country's foreign currency earnings is diverted towards servicing existing obligations. This trend can strain the balance of payments and reduce available resources for vital sectors like healthcare, education, and infrastructure development.

One of the primary drivers of the mounting debt burden is the completion of megaprojects, power and energy sector debts, dues and the capacity charge payments, which were initiated to stimulate economic growth and enhance infrastructure. While some of these projects may have long-term benefits, the immediate debt servicing requirements are challenging the government's financial capacity.

Inflationary pressures and economic consequences​

The injection of new money via borrowing from the central bank is adding to the inflationary pressure in Bangladesh. As the money supply expands without a corresponding increase in production and output, the excessive liquidity can further drive up prices and erode the purchasing power of the local currency. High inflation can hinder economic stability, deter foreign investment, and create hardships for the general population, particularly low-income individuals and vulnerable groups.

The government should prioritise efficient utilisation of borrowed funds to ensure maximum returns on investment. Implementing robust project management frameworks, promoting transparency and accountability, and reducing corruption can help optimise the benefits of megaprojects while minimising financial risks. Enhancing tax compliance, broadening the tax base, increasing FDI, and reducing tax evasion in favour of rich people can provide sustainable revenue streams to finance public expenditure and reduce the need for excessive borrowing. Moreover, the government must improve its public and fiscal data integrity.

To secure the country's economic future, the government must reduce its operational expenses and control corruption, adopt prudent fiscal and monetary policies, diversify the economy, diversify export, secure new and skilled manpower markets abroad, attract foreign investment, and, last but not the least, ensure efficient utilisation of borrowed funds. Only an accountable administration and a representative democracy can facilitate that. It is imperative to strike a balance between the need for infrastructure development and the sustainable management of debt to safeguard long-term economic stability and prosperity for the people of Bangladesh.

Faiz Ahmad Taiyeb is a Bangladeshi columnist and writer living in the Netherlands. Among other titles, he has authored Fourth Industrial Revolution and Bangladesh and 50 Years of Bangladesh Economy.

What is the future of Bangladesh’s debt-ridden macroeconomy?

The government should prioritise efficient utilisation of borrowed funds to ensure maximum returns on investment.

www.thedailystar.net

I praise the writer for writing the truth instead of all those fictions. I still expect better things would arrive. But the foreign loan amount seems to too high for a weak BD economy.

It was rising too high as per BBS speculative or fictional data when only the debt amount kept on rising year after year. The present debt amount is $96 billion that may rise to $110 billion in the next few years as more loan money gets matured.

Well, this is our fate that we are led by ignorant people who know little about national economics.

There are certainly many bureaucrats who understand it but are not heeded by Hasina.

A fair election may change the situation.

 

[Cheepek]

Would be better for BD to approach institutions or creditor countries like Japan for investment or long term soft loans to build buffers beforehand. There are red flags all over the place. Balance of payments can get perilous. Once things start going bad....

 

[Asian.Century]

$96.25 billion - Bangladesh is nearing $100 billion debt will eventually default.

 

[Skull and Bones]

$96.25 billion - Bangladesh is nearing $100 billion debt will eventually default.

Our Bi-Lol will get offended by your statement.

 

[bluesky]

$96.25 billion - Bangladesh is nearing $100 billion debt will eventually default.

Other loans will be matured by two years and the total will grow to $ 110 billion.

There is an ample chance that BD will default like SL or Pakistan unless IMF and WB support it with two hands.

The policy of borrowing and spending in two hands is wrong. Many Latin countries did similar things, built nice looking Cities and highways with borrowed money to impress others.

The result is their hollow economy. Hasina Bibi was wrong to borrow like a mad man to show off BD can be developed when the main essence of development, industrialization, has not taken root.

All industrial goods are imported making the BD economy hollow.

 

[Chute]

Other loans will be matured by two years and the total will grow to $ 110 billion.

There is an ample chance that BD will default like SL or Pakistan unless IMF and WB support it with two hands.

The policy of borrowing and spending in two hands is wrong. Many Latin countries did similar things, built nice looking Cities and highways with borrowed money to impress others.

The result is their hollow economy. Hasina Bibi was wrong to borrow like a mad man to show off BD can be developed when the main essence of development, industrialization, has not taken root.

All industrial goods are imported making the BD economy hollow.

Problem is this vindictive woman sees a threat everywhere she looks among capable people of the country.

If you have to be sycophant to get to inner circle of trust, you will not be capable person.

Your earlier point is well made about the more knowledgeable bureaucrats she deliberately suppresses....I know of some cases fairly intimately through close friend.

When you are unable to trust and delegate things to proper people to do the job, this is result in end...

Nothing fundamentally new was done with BD economy to reform it in this long corrupt tenure....to invest into making much more things with our labour pool. The industrialisation you talk of. A few things were done here and there to try look good, for sake of looking good. Where was the scale and genuine results?

This in the end always needs trust in other people to perform (and not worry about imaginary threat to you in whatever way)....rather than put them through and enforce loyalty test to get anywhere.

So our options are very low now and the costs will come with these opportunities squandered by this woman power complex and her loyal dullard coterie.

So debt (by political power leverage) became easier route instead of investment (which needs trust and economic fairness to leverage).

But when will we achieve genuine trust to broaden things competitively and by more merit?

BD politics is such a garbage scene!