Awami League govt leaves behind over Tk 18tr domestic-foreign debts

The Awami League governments had borrowed heavily from local and foreign sources over the 15 years with the Sheikh Hasina government leaving behind a legacy of Tk 18.36 trillion in debts, mostly taken from domestic sources, and in particular from the country’s banking sector, according to an analysis of data on foreign and domestic borrowings obtained from various sources of the Finance Division of the Finance ministry.

Now the interim government will have to take steps to pay these loans.

Analysts said the past government borrowed heavily from local sources due to a lack of proper debt management. Economists and experts, however, always welcome taking foreign loans in foreign currency. But, foreign loans had also been taken heavily over the past 15 years, most of those being received without proper negotiations and scrutiny, resulting in a growing pressure of liabilities on the government.

The Finance Division officially released reports on foreign and domestic debts till December 2023 showing a total loan outstanding of over Tk 16.59 trillion. Debt reports are updated every three months and the March-June reports will be released soon. The Finance Division estimates the total foreign and domestic debt outstanding will be at Tk 18.36 trillion at the end of June – Tk 10.35 trillion in domestic debts and Tk 8.01 trillion in foreign debts.

According to data from the Economic Relations Division, foreign debts stood at USD 67.90 billion at the end of June or equal to Tk 8.01 trillion (USD 1 equals Tk 118). Total foreign debts outstanding were at about Tk 4.06 trillion at the end of December 2023.

As of December last year, the outstanding loans was equal to the allocation of three budgets. These loans are known as government or sovereign debts. This process involved borrowing, paying interest, paying capital and borrowing again. The money cited as outstanding is payable in future. At the end of December, total domestic debts stood at about Tk 9.54 trillion, and that includes a loan outstanding of over Tk 5.25 trillion to the banking sector and the remaining borrowings were against treasury bills, bonds, saving certificates and general pension funds.

An analysis of data from the Finance Division shows the domestic debt outstanding was over Tk 3.20 trillion at the end of December 2017 while the Awami League was also in power. Yet, such debts rose by three folds in just six years.

When the Awami League took office on 6 January 2009, foreign and domestic debt outstanding was at about Tk 2.77 trillion, mostly foreign debt outstanding. The scenario becomes the opposite at the end when the government leaves. However, the size of gross domestic product (GDP) increased during these times.

Now the pressure of payment of interest and repayment of capital of these huge debts falls on the incumbent government. Interest rates have also risen significantly recently. Interest on treasury bills and bonds rose to 6 per cent from 1 per cent two years ago. Currently, the average interest rate stands at 12 per cent. Sales of saving certificates are also low, but interests of debts taken previously against it are being paid with tax money now. As many as Tk 1.14 trillion was allocated in the budget for the 2024-24 fiscal to pay debt interests and Tk 930 billion was to pay interests of domestic borrowing.

The government borrows from domestic and foreign sources to meet budget deficits. Experts said foreign debts are easier, as well as have less interest and a long repayment period, but it comes with negotiation capacity, as well as terms and conditions. Quite the opposite, domestic loans are easier to get. The Awami League governments heavily deepened on domestic borrowings that long ignored the opinions of economists and experts.

Bangladesh Bank and commercial banks are the sources of borrowings in the banking sector. To borrow from Bangladesh Bank requires printing out new currencies, and it triggers inflation due to the rise in the supply of currencies to markets. According to the Bangladesh Bureau of Statistics (BBS), overall inflation was at about 12 per cent and food inflation surpassed 14 per cent in July.

Centre for Policy Dialogue (CPD)'s distinguished fellow professor Mustafizur Rahman told Prothom Alo the past government relied on both foreign and domestic borrowings; both debts accelerated in the past 6-7 years, but domestic borrowings increased more. There were also reasons for this; tax collection was set at 14 per cent compared to GDP in the seventh five-year plan, but it did not happen. In contrast, this ratio dropped from 8 per cent to 11 per cent, which means the government could not reach the affluent for tax or did not want to do so, and this is the old sin. Had the target of tax collection been met, this huge debt would have not been needed at all.

Mustafizur Rahman further said, “We speak proudly for building the Padma Bridge with our funds, but it was too built on loans. The pressure of loan paying is coming. Suppliers credits have been in such an unplanned way and almost without any negotiation, now it will be felt to the bone. Paying of interests for the loans of the Rooppur Nuclear Power Plant project will have to start after two years.”

According to data from the Economic Relations Division (ERD), the burden of foreign loans increased threefold in the past 15 years. External debt accumulation was at USD 20.84 billion. The Awami League government borrowed from various countries including India, China and Russia, as well as various donor agencies on tough conditions to build a tunnel under Karnaphuli river, Rooppur nuclear power plant, elevated expressways, as well as for rail and power sectors.

The foreign debt accumulation rose to USD 67.90 billion after the 2023-24 fiscal ending in June this year, which means there is an average debt of about USD 4000 per citizen.

Though the Awami League governments borrowed heavily on the pretext of developing infrastructures in the country, they too had been under pressure to repay the debts over the past couple of years. The pressure mounted at a time when a crisis of foreign currency has been on for quite some time. Additional pressure also falls on the budget along with the foreign reserves due to spending extra money for loan repayment.

According to sources, one-third of the foreign borrowings that the government receives every year are spent on the payment of previous debts and interests. Payments of foreign debts rose by 25 per cent in the 2023-24 fiscal from the previous fiscal.

ERD sources said payments of interest and capital on foreign debts reached a record of about USD 3.36 billion in the last fiscal. Of which, USD 2.01 billion was for repayment of capital and about USD 1.35 billion was for payment of interest. Payments of interest and capital on foreign debts increased to USD 2.68 billion in the 2022-23 fiscal from USD 1.10 billion a decade ago in the 2012-13 fiscal.

Payment of loan installment for the Rooppur nuclear power plant project will start in 2026 with negotiations underway to extend the grace period for two more years. Talks are pressing on reducing loan instalments for various Chinese projects. Dhaka adopted a ‘go-slow’ policy on the about USD 5 billion loans taken on Chinese currencies, and a Chinese delegation was scheduled to visit Dhaka in August to discuss about this debt, but it has become uncertain now.

The new government, however, advised the officials to follow caution on foreign borrowings. Finance advisor Salehuddin Ahmed held a meeting with the ERD officials on this matter on 14 August and directed the officials to scrutinize interest rates, instalments, payment periods and various terms and conditions while taking foreign loans.

The finance advisor told the journalists on that day, “All are interested in lending to Bangladesh, and I asked the ERD officials to scrutinise the loans before taking those because we have witnessed the tragic consequences of many African countries which borrowed randomly.”

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