Bangladesh
4 years ago

Foreign debt payment shoots up in first quarter

Economist calls for exploring 'flexible' loans

Picture used for illustrative purpose only
Picture used for illustrative purpose only

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The country's external debt payment reached a new high of nearly $500 million in the first quarter (Q1) of this fiscal year.

The quarterly debt-servicing data released by the finance division showed the repayment rose by over 24 per cent to US$ 495.2 million over the year-earlier period.

The volume of interest payment also jumped by 35 per cent to $143.6 million during the period under review, according to a document obtained by the FE.

The finance division has prepared the document for the maiden coordination meeting of this fiscal year to be held this week.

It has noted debt-servicing has shot up by the payment against mega projects such as Rooppur nuclear power plant, metro rail and Matarbari power plant at Moheskhali.

It has predicted that the volume of "flexible" loans and grants will come down in the coming days due to the country's graduation to a lower middle-income country status as per the measurement of the World Bank.

The document also said that the future flow of loans may be associated with "floating rate" of interest, which is riskier than that of the fixed rate of interest.

Against this backdrop, the paper has stressed the need for taking "cautionary" measures while exploring loans for funding large public projects.

Officials at the finance division told the FE that there were some funds with "buyers' credit," which have no grace period leading to the rise in the volume of repayment.

"We should negotiate with such loans which will carry lower interest rates and other options including longer grace period," said an official at the finance division.

They said if the current trend in debt-servicing continues its yearly projection will need to be adjusted on the half-yearly data basis.

"The debt servicing will increase significantly this fiscal year," according to the document.

The national budget should consider the issue during the revision in January-February period.

The servicing is set to rise further since Bangladesh has become eligible for graduating from a least developed country status by 2024. They said that Bangladesh should prepare projects cautiously otherwise it will push up debt liabilities.

Dr. Zahid Hussain, an economist, told the FE: "In my view, there are some on- going projects for which the government has already started repayment."

Echoing government officials, Dr. Hussain said the government should explore flexible loans for its projects.

The economist, who had served as the lead economist at the World Bank in Dhaka, said loans from multilateral lenders like the WB, the Asian Development Bank, Japan international Cooperation Agency and even the Asian Infrastructure Investment Bank are still considered to be flexible.

"We should prepare projects efficiently before seeking funding so that liabilities can't go up," Dr Hussain noted.

The Geneva-based United Nations Conference on Trade and Development, in its latest report, said that Bangladesh has been listed among the LDCs, which are facing an "alarming increase" both in domestic and external public debt for the last five years.

It, however, suggests that Bangladesh should revitalise the aid effectiveness agenda established by the Paris Declaration of 2005 on the quality of aid and its impact on development.

Dr Debapriya Bhattacharya, a distinguished fellow at the CPD, recently warned Bangladesh would face debt-servicing problem unless it proceeded with caution while securing foreign loans. "There are many countries who took loans without considering the implications faced troubles later," said Dr. Bhattacharya.

However, the government expects to receive $8.5 billion in foreign loans to fund its many projects this fiscal year.

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