Government debt has emerged as a significant threat to economic stability. Not only the overseas loans, but also the domestic borrowings are exerting immense pressure on the government's financial resources.
The repayment pressure is pushing towards more loans, which is eventually exacerbating the burden of debt repayment. And the dollar crisis and its high exchange rate against the local currency remain unabated.
According to official statistics, the government saw its domestic borrowings surging twofold over the past five years, while the foreign debt repayment rose by 108 per cent in the last decade. The amount earmarked for interest repayment against overseas loans has finished within 10 months of the outgoing fiscal year, and the repaid amount is set to exceed the $3 billion-mark in the current fiscal.
Meanwhile, a significant number of foreign companies are facing hindrance in sending home their dividends from investments and earnings from different services and products in Bangladesh. Their trapped money amounts to nearly Tk 5 billion.
Experts see these loan liabilities as a new challenge for the government. Amidst these mounting concerns, Finance Minister Abul Hassan Mahmood Ali is set to unveil the budget for the next fiscal year 2024-25 today, Thursday.
Ahsan H Mansur, the executive director of the Policy Research Institute (PRI), explained that the government is increasingly depending on domestic and foreign loans due to lack of desired revenue collection. The loan burdens would go up further in the coming days.
He, however, suggested adopting caution about loan conditions, maturity periods, and interest rates while making loan deals.
The economist further said as there have been many discussions over government borrowings throughout the last one or two years, the finance minister should add a statement to his budget speech, detailing the loan situation, loan sources, and repayment plans.
While making decisions, foreign investors consider the particular country’s loan situation, repayment capacity, and systems to send profits home. Currently, some foreign companies are facing hurdles in taking their profits home due to the persistent dollar crisis and some other issues.
Finance ministry sources revealed that the government plans to borrow Tk 2.57 trillion from domestic and foreign sources in the upcoming fiscal year, to address the budget deficit. Of the amount, Tk 1.57 trillion will come from domestic sources, while the remaining Tk 1 trillion from foreign loans.
Domestic loans double in five years
Alongside foreign debts, the government borrows a huge sum of money from different domestic sources, including bank and savings certificates, to finance the budget deficits.
According to the finance ministry, the domestic loans were Tk 787 billion in the 2019-20 fiscal year, while the current fiscal has a domestic loan target of Tk 1.55 trillion. Such a rapid surge in domestic loans is unprecedented in Bangladesh.
As per latest data, the government has so far borrowed Tk 705 billion from the banking sector, while it has a plan to collect Tk 620 billion more through treasury bills and bonds in the current month.
Besides, its collection from the non-banking sector, mainly through savings certificates, is supposed to amount to Tk 230 billion.
The government has to depend on these borrowings if the revenue is not collected to the expected level. There was a deficit of Tk 260 billion in revenue collection in the first ten months of the current fiscal.
Allocations for foreign debt repayment runs out
The allocation for foreign loan interest payment depleted within ten months in the current fiscal year. The government allocated Tk 123.76 billion to pay interests against foreign loans, but it spent Tk 126.26 billion in the first ten months.
Sources within the Economic Relations Department (ERD) said an amount of $1.14 billion was paid as interests of foreign loans in the July-April period, which is double than the amount spent in the previous fiscal year.
The payment of foreign loan principal and interest in the 10 months totaled at over $2.81 billion, up by $860 million than the previous year’s corresponding period. It requires to repay $3.28 billion of foreign loans in the current fiscal.
Reasons behind the pressure
Finance ministry officials attributed the surge in foreign debt repayment to the expiration of grace periods of loans for major projects. The authorities started repayment of loans taken for the Rooppur nuclear power plant and the MRT line-6, while loan repayment of the Padma Bridge rail link and some other projects will begin soon.
Besides, an amount of nearly $5 billion of some foreign companies has been trapped in Bangladesh as the authorities are struggling to pay due to the dollar crisis. It adds to government liabilities.
Total loans
The finance ministry estimated the country’s total debt at Tk 16.59 trillion, where domestic borrowings are Tk 9.53 trillion and foreign loans are Tk 7.05 trillion.