Foreign Debt Hits 322 Pc High In 14 Years

Bangladesh has witnessed a remarkable 322 percent surge in its foreign debt over the past 14 years, with its foreign debt reaching $99 billion by the end of June 2023. This substantial increase, amounting to $75 billion, underscores the nation's growing reliance on foreign loans to finance its development initiatives, according to economists.

Comparatively, data from the World Bank's International Debt Report 2022 reveals that India's foreign debt increased by approximately 83 percent, Pakistan's by 101 percent, and Sri Lanka's by 119 percent over a decade from 2011 to 2021. In contrast, Bangladesh's foreign debt soared by 213.6 percent during the same period, according to central bank data.

The rapid growth in foreign debt has been particularly evident in recent years, with a 51 percent increase from $65.27 billion in June 2020 to $98.93 billion in June 2023, marking a $33.6 billion surge in just three years, as per Bangladesh Bank data.

In local currency terms, the foreign debt in June equated to nearly Tk 11 lakh crore, calculated at the rate of Tk 110.5 per dollar. Consequently, per capita debt has risen significantly, reaching $580 in June 2023 from $283 in June 2017.

While economists typically consider external debt to be risky when it exceeds 40 percent of GDP, Bangladesh seems to maintain a relatively secure position, with the country's external debt-to-GDP ratio standing at 21.8 percent in June 2023, compared to 26.3 percent in 2009.

External debt encompasses the total amount a country owes to foreign creditors, including foreign countries, international organizations, and foreign private entities, encompassing both public and private debt obligations.

Bangladesh primarily acquires foreign loans from multilateral institutions such as the World Bank, the International Monetary Fund, the Asian Development Bank, the Islamic Development Bank, and major overseas commercial banks.

According to Bangladesh's central bank data, the public sector accounted for $76.67 billion in foreign credit at the end of June 2023, with $64.57 billion directly borrowed by the government and the remainder by various government institutions.

Meanwhile, short-term foreign loans in the private sector inched up to $22.25 billion in June from $22.18 billion in March. However, buyers' credit decreased to $7.68 billion in June from $8.13 billion in March 2023.

The expansion of external liabilities carries significant implications, as a substantial portion of the country's income will be allocated to debt repayment, experts caution. They stress the importance of Bangladesh carefully managing and prioritizing its resources to ensure sustainable economic development and reducing excessive dependence on foreign borrowing.

Given the current circumstances, experts suggest that increased foreign borrowing could play a crucial role in stabilizing the foreign exchange market, the balance of payments, and the overall economy. However, they highlight the need for the government to focus on augmenting revenue streams for long-term sustainability.

Additionally, there have been allegations of project overvaluation and corruption due to inefficient allocation of foreign loans, which could have adverse effects on the economy. Hence, experts emphasize the critical need for cautious utilization of foreign loans, ensuring that investments yield profits exceeding costs and maximizing returns on these funds.

Furthermore, it is crucial to effectively utilize external debt and extract the maximum benefit from it. Inefficient allocation in unproductive sectors could lead to repayment challenges and potentially result in a crisis for the country. The devaluation of the local currency against the US dollar has made interest payments on foreign loans costlier, exacerbating the situation.

The growing trade imbalance has contributed to currency market instability, with a rise in the interbank dollar rate and a decrease in foreign exchange reserves. This situation warrants careful consideration and proactive measures to maintain economic stability.

The gross foreign exchange reserve in Bangladesh, as per International Monetary Fund guidelines, declined further to $21.45 billion on September 20. Import payments for the July-June period in the financial year 2022–23 decreased by 15.76 percent to $69.49 billion, compared to $82.49 billion in the same period of the financial year 2021–22, attributed to various initiatives.