The country’s external credit will more than double in 2022 – just in a span of five years – amid high growth of suppliers credits and short-term borrowings to finance big infrastructure projects.
The high growth of such loans taken mostly on ‘political consideration’ with high interest rates against short maturity period will take the overall stock of external debt to Tk 5,08,940 crore in 2021-22 from Tk 2,34,670 crore in 2016-17.
The projection was made by the finance ministry in its medium-term macroeconomic outlook released in June.
Experts fear that the country’s debt repayment of Tk 13,953 crore in the just-concluded fiscal year and Tk 15,725 crore projected for the current FY would increase significantly beyond 2022 with maturity of the growing short-term borrowings in place of the falling long-term loans on easier terms.
They viewed that the government should prepare a long-term debt outlook.
The Bangladesh Bank’s ‘Financial Stability Report 2018’ released in May highlighted that the short-term external debt was in a rising trend and stood at 4.5 per cent of the gross domestic product in the 2017-18 fiscal year from only 1.3 per cent in 2011-12 (the size of the country’s GDP became Tk 22,38,498 crore in 2017-18 with its one per cent being Tk 22,384 crore).
The report also highlighted that long-term borrowing was declining until 2016-17, followed by a marginal increase in 2017-18 to stand at 15.5 per cent of the GDP.
Finance ministry officials told New Age that credit on favourable terms like one per cent interest rate with long maturity period, extended mostly by the World Bank and the Asian Development Bank, was falling with the country’s emergence as a middle-income economy.
However, suppliers credit and commercial borrowing at high interest rates from sources like India, Russia, China and merchant banks have increased substantially in recent years for financing the costly projects like Rooppur Power Plant, Dhaka Metro Rail, Padma Bridge Rail Line and Karnaphuli Tunnel.
Former caretaker government adviser Mirza Azizul Islam has said that implementing projects with short-term borrowing carries a number of risks in our county where delay in project execution is a normal phenomenon.
The viability of a project may significantly decrease due to delay (in implementation), he said, adding that the cost of projects executed with the suppliers credit was always high.
The suppliers credit of more than Tk 96,000 crore taken from Russia for the country’s first ever nuclear power plant at Roppour in Pabna is scheduled to be completed in 2024 alone would substantially increase the debt burden.
The Padma Bridge Rail Link project being executed with Tk 34,988.86 crore Chinese suppliers credit is yet to start in full swing.
World Bank Dhaka Office’s lead economist Zahid Hussain said that delay in implementation and cost overrun of the development projects are most critical issues for short-term borrowing.
‘There is a risk for the country’s future generation of facing debt distress if projects fail to deliver expected economic gains,’ he said.
Policy Research Institute executive director Ahsan H Mansur said that the prices of goods purchased with suppliers credit were said to be several times the market rates.
‘There is nothing good in suppliers credit,’ he observed.
The ministry of finance in its medium-term macroeconomic outlook said that the movement of exchange rates and foreign debt should be monitored cautiously to avoid any exchange rate-related risks.
The price of a dollar in January 2009 was Tk 68.35 but now a dollar sells at Tk 84.
This means that the country has to pay back higher amount of money if there is depreciation of the local currency.
Zahid, however, said that the exchange rate issue is far less critical than the proper and timely execution of the projects.
The impact of (a negative change in) the exchange rate can be offset by collecting revenue from imported products, he added.
Former economic relations division secretary Kazi Shofiqul Azam has said that the ratio of external debt to GDP is now hovering around 13 per cent.
‘The debt to GDP ratio at 50 per cent is difficult to manage,’ he noted.
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