Proper utilisation of foreign loan for implementing mega projects is needed for Bangladesh
Lenin Rahman: The outstanding external debt as of end June stood at US$33,110.70 million which is 12.10 percent of country’s economy. Such foreign borrowing is increasing gradually due to implementation of mega projects across the country.
However, the external debt in Bangladesh averaged $ 21.55 billion from 2001 until 2018, according to the latest data of Bangladesh Bank (BB).
Experts and economists attributed the increased borrowing from foreign sources mainly to lower interest rates compared to that of domestic sources and non-availability of funds for big projects. Most local banks cannot finance large projects due to their limited capital base. They also said the debt would also rise significantly following mobilisation of fund for different mega infrastructure projects. The government should be careful about proper utilisation of the foreign loans, they suggested.
Dr Ahsan H Mansur, executive director of the leading local private think tank-’Policy Research Institute of Bangladesh (PRI) told the Daily Industry that the Rooppur plant raise the public debt significantly.
He predicted that government debt would increase by at least 50 per cent for the country’s lone nuclear power plant.
He hinted that the debt sustainability will emerge as a major challenge for the government in future.
“This is high time for the government to undertake a prudent debt management plan. Otherwise, risks will abound”, he said.
On the other hand, DrZahidHussain, lead economist at the Dhaka office of the World Bank, said the country’s debt servicing has also risen in recent years.
People invest in savings certificates as they are risk-free instruments which offer the highest return, he observed.
Bangladesh is graduating from its least developed country status, external sources of funds are increasingly becoming expensive, he pointed out.
Sources said, the highest receiver of foreign-currency loans was the telecommunications sector, which is dominated by multinationals.
On the other hand, the power sector is s the second-highest recipient of total approved foreign loans.
Until 2008, the local businesses, bar some special cases, had not been allowed to borrow from foreign sources that offer loans at lower lending rates than those charged by the domestic banks and other financial institutions.
After substantial improvement in the foreign-exchange-reserve position, the government decided to allow such borrowing in the year 2008 only for the import of capital goods for new projects and modernisation, and other sectors defined in the country’s industrial policy.
Due to a robust reserve position, outside lenders and others started making available a considerable volume of funds to Bangladeshi entrepreneurs.
The rate of external debt becomes a cause for concern when it crosses the level of 40 percent of the GDP, said MdRuhul Amin, a joint secretary at the ERD.
“We will be able to complete the repayment in 2057. If we don’t take any new loans, the maximum repayment we will have to make is around $1.6 billion in 2027. The rate will gradually decrease afterwards.
“So, there should not be any problem in paying back the foreign loans, even if Bangladesh’s GDP growth rate drops to 5 percent,” he said.
In 2017-18 financial years, Bangladesh repaid 1.11 billion external debts while the GDP growth accelerated to 7.86 percent.
“The foreign debts won’t pose any risk to our economy, he said.
Meanwhile, the interest rate on loans from Japan International Cooperation Agency or JICA may increase from 0.1 percent to around 1 percent while the World Bank’s International Development Association has already pushed the rate from below 1 percent to 1.5 percent, according to Ruhul Amin.
Considering the current financial capability of Bangladesh, the amount of external debt has in no way crossed the limit to cause alarm, he said.
The amount is 14.3 percent of the gross domestic product or GDP in 2018 while it was 12.8 percent of the GDP in 2017, according to the Economic Relation Division data.
The rate of external debt becomes a cause for concern when it crosses the level of 40 percent of the GDP, MdRuhul Amin, a joint secretary at the ERD said.
Asian Development Bank lends money at two levels. One is with 2 percent interest while the other is based on London Interbank Offered Rate or LIBOR, he said.
China said Bangladesh would not need to pay more than 2 percent interest while India is not charging more than 1 percent, the ERD joint secretary said.Russia, however, is taking more than 4 percent interest for the $12.65 billion Rooppur Nuclear Power Plant Project. “Generally the interest rate is high in such deals,” the additional secretary said.However, the weighted average rate of interest on these loans taken from different countries and agencies is 1.23 percent.