National, Front Page

Confusing comment shouldn’t be made

On foreign debt repayment

Published : 24 Jul 2022 09:25 PM | Updated : 25 Jul 2022 12:51 AM

The adage goes, cowards die many times before their death, but it was not known that Mr. Debapriya Bhattacharya, a distinguished fellow of the CPD, would get frustrated so early about the repayment of foreign debt which will start in 2026, according to him.  

Bangladesh has never defaulted on foreign loans in its history because of its cautious management of external debt of which a much higher portion is soft loan with longer maturity periods, a few leading economists pointed out. Moreover, the interest rates on foreign loans of Bangladesh are very low and the fact should have been in his information basket.

In the context of foreign interest and actual payments, Dr Zahid Hussain, the former lead economist of the World Bank, told Bangladesh Post, “Loans and interest payments are increasing as export earnings and foreign exchange reserves are increasing in Bangladesh. The country’s remittance inflow is good. These have multiplied since independence.”

Bangladesh's foreign loan was taken with low interest rates and long grace periods and long repayment periods. As a result, the country can repay the loan after a long time, he mentioned.

Before creating confusion, Mr. Debapriya should have taken the over-all success of the present government under Prime Minister Sheikh Hasina into consideration. There were several reports published in the recent past that Foreign loan repayment was satisfactory. It was said in the news that Bangladesh has been successfully repaying foreign loans since independence to live up to its good reputation worldwide.

Some people who were being frustrated in advance was saying Bangladesh may incur the same consequence after the economic crisis in Sri Lanka. But it didn’t happen.

Both Sri Lanka and Pakistan's national debt (percent of GDP) has been considerably higher than that of Bangladesh.

In 2011, according to the World Development Indicators (WDI), Sri Lanka's national debt was around 70 percent of its GDP. In 2021, the figure shot up to above 100 percent as the economic crisis deepened.

Pakistan's national debt-GDP ratio increased from around 60 percent to 87 percent during the same period.

On the other hand, Bangladesh has significantly lower national debt, hovering around 40 percent of its GDP in 2021. However, countries like the US and Japan have also had persistently high debt-GDP ratios.

The size of Bangladesh’s economy and volume of exports are bigger than those of Sri Lanka and Pakistan put together, while foreign currency reserves are more than double the amount held by these two South Asian countries, according to the Prime Minister's Office (PMO).

According to the Economic Relations Division (ERD) recent data, donors pledged $5.91 billion to Bangladesh from July to May of 2021-22 year. They gave $8.41 billion, up 42.40 percent of what they wanted to give to Bangladesh. It is rare to get foreign loan assistance like this, economists said.

Of the disbursed loan, $8.22 billion was received as project assistance and $188.50 million as grant.

$2.53 million was received as food grant and $186 million as project grant in the first 10 months in the last fiscal.

However, development partners released $5.72 billion in July-May of the 2020-21 fiscal year.

As a result, foreign loan assistance has increased by 47 percent in the first 10 months of the last fiscal.

According to ERD, donors pledged $5.36 billion in loans in July-May 2020-21. During the same period of the fiscal year 2021-22, it has increased by 10.20 percent to $5.91 billion.

However, Bangladesh has paid $1.88 billion for the principal and interest to development partners. As a result, the principal and interest repayment of the loan has increased by 10 percent over the previous fiscal amounting to $1.71 billion.

However, on different floors, there is a lot of discussion about Bangladesh's foreign debt after the economic crisis in Sri Lanka as well as Pakistan.

In this regard, Planning Minister MA Mannan said Bangladesh always takes projects in terms of reality as we do not accept anything emotionally.

“The country’s remittances and reserves are good. For these reasons, we are repaying foreign loans and interest regularly. I have never failed, I will not fail in these cases. We are always using foreign loans for the right purpose. We are not eating with the loan, the main reason is that we are paying regular interest and principal,” he mentioned.

Explaining why Sri Lanka-like situation does not exist in Bangladesh, the newly appointed Finance Secretary Fatima Yasmin said, “We are recovering quickly from the impact of the Covid-19 pandemic. Many countries in the world could not do that. In the fiscal year 2020-21, we have achieved 6.94 percent GDP growth. More than 7.25 percent was earned in the last fiscal year. Export income has increased by more than 35 percent. Revenue collection is growing by more than 15 percent. Debt flow in the private sector has increased to more than 12 percent.”

She said, “Bangladesh's interest rates on foreign loans are very low. The current economic situation is very good as every economic indicator is positive. Bangladesh has more than double the reserves of Sri Lanka and Pakistan. Bangladesh has not made a single mistake like Sri Lanka. So, there is no problem with foreign loans.

“Output is good in development projects. Exports and remittances are one of the debt repayment weapons. It is in a good enough position. Foreign exchange earnings are quite high. For all these reasons, the loan repayment performance is good. We have taken different projects in each sector. Money was not wasted, if it was wasted then the economy would be weak. Our economy is good enough now, not weak,” he added.

Dr. Monzur Hossain, Senior Research Fellow of Bangladesh Institute of Development Studies (BIDS), told Bangladesh Post that low interest foreign loans have always contributed to the development of Bangladesh.

“After two and a half years of Covid-19 pandemic, the Russia-Ukraine war has now changed the entire world economy. Even then Bangladesh’s economy is in pretty good shape. This debt is helping to keep our economy moving in a positive direction,” he mentioned.

Bangladesh’s economy stands on a very strong footing which shows a positive image for the country across the world, he mentioned.

However, the total foreign debt pledge of Bangladesh since independence has been $127 billion. Of this, $72 billion has been disbursed, and the pipeline has $50 billion (excluding autonomous ones), according to ERD sources.

Development partners have given loans and grants for various development projects. The World Bank has released a total of $23 billion to Bangladesh since independence.

Since then, ADB has released $18 billion, Japan's disbursement is $16 billion.

During this time, China released $4.38 billion. At the same time, the European Union contributed $4 billion, the United States $3.5 billion, Russia $3 billion, Canada and Germany are the same of $2 billion, UNICEF $1.5 billion, India $1.47 billion, the Netherlands $1 billion, Denmark $1 billion, Saudi Arabia $1 billion and Sweden $1 billion.

Bangladesh has been able to repay the interest and principal of the development partners on a regular basis on these loans.

As a result, development partners are always behind Bangladesh with loans.

The capacity to pay foreign loan interest has increased from 7.5 million to 498 million.

However, war-torn Bangladesh did not repay foreign loans and principal in the fiscal years 1971-72 and 1972-73.

Bangladesh has been repaying foreign loans and interest regularly since 1973-74.

In the first fiscal year 1973-74, Bangladesh paid only $6.5 million in foreign interest.

At present, the ability to pay foreign loan interest has increased to $498.18 million.

Economists said Bangladesh's economy is constantly growing, besides, the ability to pay interest is also increasing.

At present the economy of Bangladesh is in a very strong position, they said, adding that as a result, the payment of foreign loan interest has increased several times.