Government must change external debt policy to head off danger

Published: 00:00, Aug 25,2019

 
 

EXTERNAL public debt — which is certainly not the more, the merrier — could more than double in 2022, as New Age reported on Saturday, amidst a high growth of supplier’s credit and short-term borrowing aimed at financing big infrastructure projects. The high growth of such loans, said to have been taken mostly on political considerations, at high interest rates but with a short maturity period could take, keeping to a mid-term macroeconomic outlook of the finance ministry, the overall amount of external debt from Tk 2346.7 billion in the 2017 financial year to Tk 5089.4 billion in the 2022 financial year. Economists and experts fear that amount of debt repayment, which was Tk 139.53 billion in the financial year that just went by and which is Tk 157.25 as projected for the current financial year, would significantly increase beyond 2022 with the growing short-term borrowing maturing and the long-term loans on easy terms declining. The Financial Stability Report 2018 of the Bangladesh Bank released in May says that short-term external debt was increasing and accounted for 4.3 per cent of the gross domestic product in the 2018 financial year, up from 1.3 per cent of the gross domestic product in the 2012 financial year, with 1 per cent of the Tk 22384.98 billion gross domestic product in the 2018 financial year accounting for Tk 223.84 billion.

The report also notes that long-term borrowing declined until the 2017 financial, with a marginal increase having happened in the 2018 financial year, accounting for 15.5 per cent of the gross domestic product. This is where the risk lies. More short-term external loans at high interest rates could put the economy under pressure as the government need to spend more on debt financing in a short time, which could be avoided if the government went for long-term loans at low interest with long maturity period. The government should avoid going for supplier’s credit and commercial borrowing at high interest rates from India, Russia, China and merchant banks, which have recently increased because of the financing of expensive projects such as the Rooppur Power Plant, Dhaka Metro Rail, Padma Bridge Railway Link and Karnaphuli Tunnel. Such debts could also be a burden on the economy if the projects carried out with external debt with high interest but short maturity period fail to give the expected economic benefits and within the time stipulated. Besides, the dollar is known only to have appreciated in Bangladesh, which also means a higher debt financing in terms of money although exchange rate issue is said to be less critical than proper and timely execution of large projects. There is also an added risk problems that might surface in the export sector and remittance inflow, both of which help in debt financing with the foreign currency.

If the issue of external public debt at high interest and with short maturity period cannot properly be attended to, the future generation would be left in a debt distress. The government must, therefore, shift its focus from short-term, high-interest external debt, supplier’s credit and commercial borrowing to long-term external debt at low interest rate with long maturity period. It must also shore up other issues such as project analysis and management, exports and remittances so that external debt already taken may not create problems.

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