Foreign debt payment pressure mounts

Bangladesh is facing mounting pressure on foreign debt payments as its annual loan repayment rose by more than 37 per cent in the outgoing fiscal year of 2022-23 compared to the previous fiscal.

Taking into account the last six years, the amount of loan payments has doubled.

According to sources from the Economic Relations Division (ERD), Bangladesh paid a foreign debt of USD 2.74 billion (274 crore), including principal and interest, in the outgoing fiscal year, while the amount was USD 2.01 billion in 2021-22. This means the payment of loans increased by USD 730 million in just one year.

According to a recent report of the finance ministry, Bangladesh will have to make payment of USD 3.28 billion in the current 2023-24 fiscal and the amount will soar to USD 5.15 billion in 2029-30FY. The report further stated that even if Bangladesh does not take any new loan, the country will have to pay the existing loan with principal and interest till 2062.

Government’s foreign currency earning dropped substantially in the face of economic crisis while the expenditure has increased. As a result, the current and financial account has become imbalanced. Although export situation is good, the remittance inflow is fluctuating. Majority portion of private loan taken in dollar are not being renewed. In such a situation, the repayment of loan taken by the government is depleting the dollar reserve. As a result, the foreign reserve has almost halved.

The situation has arisen due to a reduction in the disbursement of soft loans and an increase in the amount of high-interest loans. The pressure has further intensified with the start of loan repayments for the Rooppur Nuclear Power Plant. Additionally, there are repayment pressures for loans taken from China and India.

Officials from the Economic Relations Division (ERD) stated that the loan installment for the Rooppur power plant cannot be paid since Russian banks were banned from the SWIFT system. As a result, the amount is being held in a specialised account of Bangladesh Bank. An amount totaling USD 330 million has been kept in that account over the last year, and this amount is being shown as paid.

According to ERD sources, Bangladesh paid a loan amount of USD 1.1 billion in the fiscal year 2012-13. Over the next 10 years, that amount increased to USD 2.01 billion. The surge in loan payments mainly started as the repayment of Chinese loans began in the last two to three years. Now, the pressure of Russian loans has been added, further complicating the situation. This pressure is expected to increase in the coming days as the repayment of loans for the Karnaphuli tunnel project and Padma bridge rail link project will begin from this year.

Shamsul Alam, state minister for planning, told Prothom Alo, “The pressure seems to be increasing due to the volume of loan repayment. But the amount is still within our capability, so there would be no crisis in repayment of the loan. Because, the loan we are taking from the foreigners are adding up to our growth. Our production is increasing.”   

About the reason of drop in foreign assistance, Shamsul Alam thinks the Ukraine war might affect the capability of the powerful nations to provide loans. The inflow of foreign loan fluctuates. Export and remittance inflow have increased than that in the past. The dollar crisis is mitigating, so there would not be any problem in loan repayment.

World Bank, Asian Development Bank (ADB), Japan, China, India and other development partners promise new amount of loan every year. They also release previously promised loans.

ERD sources said loan promised by WB, ADB, Japan, China, India and other development partners last year was the lowest in five fiscal. Bangladesh was promised USD 8.8 billion loan in last year, which is USD 1.37 billion less than the previous year.

Bangladesh was promised USD 9.9 billion loan in 2018-19FY which increased to USD 10.17 billion in 2021-22FY.

Bangladesh experienced a record release of USD 10.97 billion in foreign assistance during the 2021-22 fiscal year, as disbursement of foreign assistance had never crossed the USD 10-billion mark before.

However, the scenario took an opposite turn to a large extent in the 2022-23 fiscal year, as disbursement of foreign assistance dropped by USD 1.70 billion to USD 9.27 billion. According to ERD sources, the country had never witnessed such a significant drop in foreign assistance and commitment before. Several ERD officials raised questions about this decline during the recent ERD coordination meeting

Foreign assistance of USD 6.54 billion was disbursed in the 2018-19 fiscal and foreign assistance crossed about USD 11 billion in the next four years.

Several ERD officials told Prothom Alo that all development partners have become cautious because of the Russia-Ukraine war. Countries with large economies are somewhat under pressure and hesitant when it comes to providing assistance. Besides, project implementation slows in the country as the economy faces pressure. All these reasons saw a drop in foreign assistance and commitment, they said.

About USD 450 billion is the pipeline for Bangladesh with 90 per cent of it being soft loan. That means Bangladesh must take up projects to disburse these funds.

According to ERD sources, Bangladesh received the highest USD 16 billion soft loans from the World Bank and that usually has a repayment tenure of 32-40 years.

On the other hand, Bangladesh had signed loan agreements of USD 33.77 billion with China, India and Russia over the past 10 years. Of which, loan agreements of USD 17.58 billion are with China, USD 11.87 billion are with Russia and USD 7.36 billion are with India, and the repayment tenure of these loans is 20-25 years including the grace period. The repayment tenure of the loans taken from Russia, China and India is nearly half of the payment period of the loans taken from the World Bank, ADB and other organisations and countries. As a result, the amount of repayment is on the rise.

About the overall situation, Policy Research Institute (PRI) executive director Ahsan H Mansur told Prothom Alo, “Pressure of repayment just started. The amount of repayment rose by 30 per cent in the last fiscal because repayment of loans taken from Russia, China and India with tough conditions has begun. These loans will have to be paid in the next 15-20 years.”

According to Ahsan H Mansur, in terms of economic considerations, loans with tough conditions are not viable for several projects. For instance, several projects on Padma Bridge rail links have been undertaken at the cost of Tk 620 billion, which was financed by China. Considering that no more than 4-5 trains will operate from the capital per day, it raises questions about how many years it will take to raise this money. Additionally, concerns are also raised about building the Rooppur Nuclear Power Plant by spending such a huge amount of money. It may become difficult to repay the loan with the revenue that will be earned from these projects.