Repayment of foreign debts tops $3bn in 11 months

Rooppur Nuclear Power Plant, one of the mega projects built with foreign borrowingsFile photo

The repayment of foreign debts has surpassed USD 3 billion in the first 11 months of the 2023-24 fiscal (FY24) despite no significant disbursement of and rise in foreign loans over the period. Overall, the pressure to repay the foreign debts has increased to many extent, and that will mount in the coming days.

According to the Economic Relations Division (ERD), Bangladesh repaid about USD 3.07 billion in principal and interest for the first time from July to May of the current fiscal, which is 25 per cent or USD 600 million more compared to the previous fiscal. The repayment of foreign debts was a total of USD 2.68 billion in the last fiscal.

This was revealed by the latest report on foreign debts by the ERD released recently. The finance ministry prepared a projection on repayment of foreign borrowings and the ministry thinks pressure will mount in the coming years.

The pressure on foreign debt repayments came amid the persisting dollar crisis, and experts opined this additional spending on loan repayments is creating extra pressure on budget and foreign currency reserves.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRIB), said macroeconomics must be stable to tackle the situation to repay the foreign debts, and the focus should be on the currency exchange rate so that it does not rise any further.

Besides, exports must be increased, he said adding, that more scrutiny should be carried out on more loans from China and Russia. Overall, foreign reserves will have to be increased, and if the situation continues as it has been over the last two years, it will be very difficult to tackle the matter in the near future.

Ahsan H Mansur also presents the reality of Bangladesh receiving foreign loans. He said, “At present, we are running low on money and we have no option to choose because we must maintain the reserves for the next one or two years. We must bring dollars wherever we find it – it can be from the World Bank to China and Russia though we have been in a dilemma to this end.”

Officials with knowledge of the scenario of foreign debts think pressure on repayment of loans is mounting due to short-term loans from China and Russia. Meanwhile, repayments of loans on the Rooppur Nuclear Power Plant project and the metro rail project have already started, and pressure will rise further once the repayment of loans for other mega projects starts in the next 2-3 years.

Billion dollar interest

According to the ERD sources, over USD 1.81 billion were repaid in principal in the 11 months of the current fiscal and over USD 1.25 billion in interest, totalling USD 3.07 billion. Data from ERD showed reimbursement of principal increase at a higher rate than the repayment of interest in the current fiscal. Repayment of the principal of the foreign debts rose by 36 per cent or USD 230 million in July-May of FY24 as compared to the preceding time of the previous fiscal while spending increased by 42 per cent or USD 370 million in the 11 months of the FY24.

Rise in loan repayment, not in disbursement

Disbursement of foreign funds did not increase as much as the rise in loan repayment. Besides, there were fewer commitments on new loans. According to the ERD data, disbursement of foreign funds by development partners increased by USD 40 million to USD 7.02 billion in July-May of the 2023-24 fiscal from USD 6.98 billion in the 2022-23 fiscal.

On the other hand, Bangladesh received commitments of USD 7.92 billion from donor agencies and countries in the first 11 months of the current fiscal, and commitments of USD 7 billion of those funds came in July-December. According to the ERD, no there was no commitment on loans from China, Russia and India over the period.

Prothom Alo tried to reach the state minister for finance Waseqa Ayesha Khan for comment, but she was unavailable. ERD secretary Shahriar Kader Siddiky could not reached over the mobile phone. He did not reply to SMS either.

Situation in next three years

The finance ministry prepared a projection on a probable senior in the next couple of years. The ministry predicted that repayment of foreign debts will rise to USD 2.63 billion in principal in the next fiscal and USD 3.16 billion in the 2026-27 fiscal.

On the other hand, interest on foreign borrowings will rise to Tk 155 billion in the next fiscal and by about Tk 105 billion to Tk 260 billion in the 2026-27 fiscal. Currently, the largest portion of the national budget goes on the interest on foreign debts.

*This report appeared in the print and online editions of Prothom Alo and has been rewritten in English by Hasanul Banna