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Bangladesh Borrowing to send economy roaring

UKBengali

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This @UKBengali (@BDBengali) lies all the time very passionately with facts and figures.
I think he actually agrees with me but you misunderstood his post.

Tell us when BD last took a loan from IMF or World Bank and then compare with the sources I quoted.

Hint: BD mainly turned to IMF and World Bank last due to corona virus but usually does not borrow money from them anymore.
 

fallstuff

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Total debt to GDP hit a 13-year high at the end of fiscal 2020-21


Rejaul Karim Byron , Dwaipayan Barua
Wed Oct 13, 2021 12:00 AM

Bangladesh is taking on increasingly higher levels of debt to fund its infrastructure spending, crucial for the economy to level up to a middle-income one by 2041.
After the Awami League government came to power in 2009, it took up several monumental development projects with the view to transforming the country's communication, transport and power infrastructure.

Eight mega projects are in implementation, whose completion is expected to raise Bangladesh's GDP by as much as 4 percent.

Every year, thousands of crores are being diverted to them, along with the other infrastructural projects, which is raising Bangladesh's debt level in the face of stubbornly low revenue growth.

At the end of last fiscal year, Bangladesh's total debt to GDP ratio hit a 13-year-high of 38 percent -- way below the 70 percent threshold recommended by the International Monetary Fund, according to a recent report of the finance ministry.

As of June 30, the total outstanding debt stood at Tk 11,44,297 crore, 36.7 percent of which is attributed to foreign sources.

At the end of last fiscal year, Bangladesh's total external debt stood at Tk 420,358 crore, which is the lowest in the last six years. It is equivalent to 13 percent of GDP, meaning comfortably below the IMF's recommended threshold of 55 percent.

"At the current level, Bangladesh's total debt is sustainable," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

In other words, the country is at low risk of debt distress even if the current growth and financing conditions change in unfavourable ways but within foreseeable bounds.
"There is a significant cushion between what is considered a sustainable threshold and the current debt to GDP ratio."

The effective nominal interest rate on the total debt is about 6 percent, which compares favourably with the nominal GDP growth of more than 10 percent, Hussain said, adding that the effective real interest rate is below 1 percent.

"We will not overborrow," said Finance Minister AHM Mustafa Kamal, adding that the government has a set maxim for borrowing.

The government would not borrow huge amounts of money when it is still a developing country.

"We have decided not to borrow heavily and will always keep borrowing in line with the GDP."

He went on to state that Bangladesh never failed to repay its loans.

"We always do the debt servicing timely. That is why the development partners have faith in us," Kamal added.

Hussain said there is room for improving public debt management.

"There is the room because the opportunities for concessional debt financing, while waning, are not exhausted. This means we can reform the composition of debt to make it even less costly."

There is a need for such reforms because interest expenditure constitutes 2.3 percent of GDP, which is higher than the expenditure on education relative to GDP and about one-fifth of total tax revenues, Hussain said.

Out of the domestic debt, 48 percent is thanks to the national savings certificate, for which the interest rate varies from 10 to 11 percent.

In contrast, banking sources, whose interest rate ranges from 2 to 8 percent, account for 46 percent of the domestic debt.

For borrowing from foreign sources, the interest is still less than 2 percent with a repayment period of 20 to 30 years.

"There is an opportunity to build more fiscal space under the prevailing financing conditions. The latter cannot be taken for granted in a world vulnerable to disruptive changes," Hussain added.

Kamal hinted that the interest rate on foreign loans would not increase in future even if the country graduates from the least-developed country bracket in 2026.

The government is negotiating with the development partners so that it could borrow at low-interest rates for a long period with the view to making the graduation to the developing country bracket sustainable following the global coronavirus pandemic, he said.

In fiscal 2021-22, the government has allocated Tk 68,589 crore for loan repayment. In fiscal 2009-10, the amount was Tk 14,646 crore.

The amount of total foreign debt servicing also rose to $1,900 million in fiscal 2020-21, which was at $876 million in fiscal 2009-10.

There is also room for improving the return from debt-financed expenditures by improving the efficiency of public investment management, Hussain said.

Public investment projects take too long to complete and often exceed the budget by a multiple of the original budget, he added.

A total of 10 megaprojects, which would have a substantial impact on the economy and wellbeing of the population, were singled out for fast-tracking.

And yet, the projects, for which thousands of crores were diverted over the past decade, are behind on their schedule.
Getting in debt up to the eyeballs never helped anyone, any company, or any country in the history.

These rules are not about to change anytime soon.
 
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Indos

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As long as IMF doesnt put hard condition, their loan is basically cheap, ADB and World Bank also offer cheap loan. Countries cannot stop borrowing, particularly for countries like Indonesia and BD where tax ratio is very low and government revenue to GDP ratio is 10-12 percent, even USA also borrows a lot and their borrowing behavior can affect whole world, particularly in relation to their gov bond interest rate changing.

Countries like Indonesia doesnt borrow money to them nowadays, except for some projects where ADB and World Bank become the main lenders. Mostly Indonesia borrows from financial market and issues government bond. The interest rate will be more expensive but no attachment on some condition like the way IMF like to impose during our most difficult time.

The main important thing is to select program cleverly that will be financed by loan, some high stuff like HSR should not be executed. For Indonesia case I always advocate in here to not finance HSR program, but rather Semi Speed Train for both Jakarta-Bandung and Jakarta-Surabaya route. I dont know why Jokowi is so keen on this HSR, but now as cost is escalating and backlash from opposition and economist are coming, I expect and hope Jakarta-Bandung HSR project will be the last HSR project in Indonesia.

Unlike China, Indonesia is not having massive land as we are comprising of islands instead, this is why Jakarta - Surabaya route, which currently uses conventional trains and track, doesnt need too much time to go from Jakarta into Surabaya, it is only 9 hours. By using medium speed train, the time can be cut about 4 hours so it will be 5 hours. I think it is already enough as people also want to stay longer in the train to enjoy the sight seeing from the window train. Bangladesh IMO also has similar situation as I think the land is quite similar with Java island in term of the length.
 
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UKBengali

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As long as IMF doesnt put hard condition, their loan is basically cheap, ADB and World Bank also offer cheap loan. Countries cannot stop borrowing, particularly for countries like Indonesia and BD where tax ratio is very low and government revenue to GDP ratio is 10-12 percent, even USA also borrows a lot and their borrowing behavior can affect whole world, particularly in relation to their gov bond interest rate changing.

Countries like Indonesia doesnt borrow money to them nowadays, except for some projects where ADB and World Bank become the main lenders. Mostly Indonesia borrows from financial market and issues government bond. The interest rate will be more expensive but no attachment on some condition like the way IMF like to impose during our most difficult time.

The main important thing is to select program cleverly that will be financed by loan, some high stuff like HSR should not be executed. For Indonesia case I always advocate in here to not finance HSR program, but rather Semi Speed Train for both Jakarta-Bandung and Jakarta-Surabaya route. I dont know why Jokowi is so keen on this HSR, but now as cost is escalating and backlash from opposition and economist are coming, I expect and hope Jakarta-Bandung HSR project will be the last HSR project in Indonesia.

Unlike China, Indonesia is not having massive land as we are comprising of islands instead, this is why Jakarta - Surabaya route, which currently uses conventional trains and track, doesnt need too much time to go from Jakarta into Surabaya, it is only 9 hours. By using medium speed train, the time can be cut about 4 hours so it will be 5 hours. I think it is already enough as people also want to stay longer in the train to enjoy the sight seeing from the window train. Bangladesh IMO also has similar situation as I think the land is quite similar with Java island in term of the length.

Some people do not understand that sometimes borrowing can be an investment for the future.

It is no different to taking out a bank loan to start a business, with a nice difference that BD usually borrows for decades with low interest rates - the Russian and Chinese loans are two notable exceptions but even these are over decades, have a 5-10 year grace period and the interest rate is not exceptionally high.

BD only borrows money for critical infrastructure that will give both a social and economic return. In essence it is more expensive NOT to borrow this money for these projects.

As an example, look at the money being borrowed to build the Dhaka metro. Does BD have a choice not to borrow this money as it cannot raise through its own funds? No really as otherwise the capital city will come to a complete gridlock, which will harm both the national economy and also the habilitability of the city itself.
 

UKBengali

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For those who are trying to compare BD with Pakistan:


"KARACHI: The country paid over $7 billion in external debt servicing for the first half of fiscal year 2020-21 (1HFY21) "

In contrast in the whole of 2020, BD paid 2.2 billion US dollars.

Even taking into account that Pakistan raises 50 billion dollars in revenue per year compared to 40 billion US dollars for BD, that is around SIX times the burden as a proportion of revenue collection for Pakistan as compared to BD.

BD is one of the less indebted countries in the developing world and the debt burden as a proportion of GDP is actually projected to fall a little over this decade. There is little to worry about and we have a mathematically illiterate BD poster and a Pakistani poster, probably due to trying to feel better at Pakistan's dire situation and so trying to say that BD is no better and going down the same path, making themselves look very ignorant.
 

bluesky

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Yes I've read that, in fact I've seen both of you on PDF for years, so I wish both of you can calm down, argue but don't fight. All the best my fellow PDFers!
Please do not patronize others. I try to write logically. If you do not like them, just don't please care to read my posts.
 

Bilal9

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As long as IMF doesnt put hard condition, their loan is basically cheap, ADB and World Bank also offer cheap loan. Countries cannot stop borrowing, particularly for countries like Indonesia and BD where tax ratio is very low and government revenue to GDP ratio is 10-12 percent, even USA also borrows a lot and their borrowing behavior can affect whole world, particularly in relation to their gov bond interest rate changing.

Countries like Indonesia doesnt borrow money to them nowadays, except for some projects where ADB and World Bank become the main lenders. Mostly Indonesia borrows from financial market and issues government bond. The interest rate will be more expensive but no attachment on some condition like the way IMF like to impose during our most difficult time.

The main important thing is to select program cleverly that will be financed by loan, some high stuff like HSR should not be executed. For Indonesia case I always advocate in here to not finance HSR program, but rather Semi Speed Train for both Jakarta-Bandung and Jakarta-Surabaya route. I dont know why Jokowi is so keen on this HSR, but now as cost is escalating and backlash from opposition and economist are coming, I expect and hope Jakarta-Bandung HSR project will be the last HSR project in Indonesia.

Unlike China, Indonesia is not having massive land as we are comprising of islands instead, this is why Jakarta - Surabaya route, which currently uses conventional trains and track, doesnt need too much time to go from Jakarta into Surabaya, it is only 9 hours. By using medium speed train, the time can be cut about 4 hours so it will be 5 hours. I think it is already enough as people also want to stay longer in the train to enjoy the sight seeing from the window train. Bangladesh IMO also has similar situation as I think the land is quite similar with Java island in term of the length.
My thoughts exactly, I believe borrowing itself is not bad per se, provided loan payback terms are fair and rational, which can be part of the process of development.

I agree also that, the other pre-condition of loans is connection of the project being financed to be productive in the future. I agree medium speed rail (say 120 to 150 KMPH or 90 MPH) is helpful for both Indonesia and Bangladesh - rather than HSR planned for Bangladesh and executed in Indonesia. Bangladesh routes will benefit by 90 MPH Medium speed rail (high volume) because in that scenario, Dhaka will be connected with Chittagong and Sylhet (Two larger cities) with about 2~3 hour routes.

For Thailand (Bangkok) the metro was a boon for sure (in spite of expense), same with the metro and BRT in Jakarta. I have spent many a useless hour stuck in traffic in Sukhumvit road in Bangkok.

We are expecting Dhaka will see a similar boon with Metro, it has become a hard necessity now (there are six lines planned, one is completed). Execution is the main thing, one must plan the metro routes properly to effect maximum utilization and of course effective reduction of traffic gridlock.
 
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Indos

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My thoughts exactly, I believe borrowing itself is not bad per se, provided loan payback terms are fair and rational, which can be part of the process of development.

I agree also that, the other pre-condition of loans is connection of the project being financed to be productive in the future. I agree medium speed rail (say 120 to 150 KMPH or 90 MPH) is helpful for both Indonesia and Bangladesh - rather than HSR planned for Bangladesh and executed in Indonesia. Bangladesh routes will benefit by 90 MPH Medium speed rail (high volume) because in that scenario, Dhaka will be connected with Chittagong and Sylhet (Two larger cities) with about 2~3 hour routes.

For Thailand (Bangkok) the metro was a boon for sure (in spite of expense), same with the metro and BRT in Jakarta. I have spent many a useless hour stuck in traffic in Sukhumvit road.

We are expecting Dhaka will see a similar boon with Metro, it has become a hard necessity now (there are six lines planned, one is completed). Execution is the main thing, one must plan the metro routes properly to effect maximum utilization and of course effective reduction of traffic gridlock.
Talking about lending and borrowing, some thing that needs to look after is BD banks NPL (Non Performing Loan) that is quite high. Some institution reform within BD SOE needs to be the other focus. Just see BD Banks coming from SOE is quite dominating and contribute to 30 % lending in BD. Indonesia also has SOE banks that dominate our banking system as 7 of 10 biggest banks in Indonesia are SOE. 2 of the top 10 are foreign owned bank, so we can compare the profitability and solvency between SOE banks with foreign own bank (MNC).

The problem is NPL in BD SOE Banks is quite alarming, at 20 %. There is institutional reform that should take place during BD high growth or it can become some kind of ticking bomb ready to explode.

Indonesia biggest Bank, state owned Mandiri Bank for instant has around 3 % NPL and this is during difficult time in 2020.

 
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Indos

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I agree also that, the other pre-condition of loans is connection of the project being financed to be productive in the future. I agree medium speed rail (say 120 to 150 KMPH or 90 MPH) is helpful for both Indonesia and Bangladesh - rather than HSR planned for Bangladesh and executed in Indonesia. Bangladesh routes will benefit by 90 MPH Medium speed rail (high volume) because in that scenario, Dhaka will be connected with Chittagong and Sylhet (Two larger cities) with about 2~3 hour routes.
I am talking about 180-200 KMPH for medium speed train. Previous plan is Japanese will finance the project, but no real contract yet. I rather prefer Indonesia do it alone and use its own funding and financing, there we could use our own train to serve the route if the development of the prototype is successful. The plan is to build medium speed train at 160 KMPH. This is fast enough IMO.

---------------------------------------------------

State-owned train manufacturer PT Industry Kereta Api (PT Inka) has said the company is ready to manufacture engine-less trains that can run up to 160 kilometers per hour along the planned medium-speed train (MST) railway from Jakarta to Surabaya.

PT Inka corporate secretary I Ketut Astika said the train would have a driver's compartment at each end, but no engine car. The company had the capacity to manufacture both diesel-powered and electric trains, Ketut said on Tuesday in Surakarta, Central Java, as quoted by kompas.com.

He said Inka had nearly completed the conceptual design for the train, which would be adjusted to meet the specifications of state-owned railway company PT Kereta Api Indonesia (PT KAI). “In principal, we already have the bogie [wheel truck] for a train that runs 160 kilometers per hour,” he said, adding that the body of the MST would be aerodynamic to support faster speeds.


-------------------------------------------------------

They are going to use a combination of electric from transmission system and battery technology as propulsion and said the prototype will be ready in the end of 2022
 

Indos

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Some data about BD economy, debt to GDP ratio, gov revenue to GDP ratio, spending deficit to GDP ratio, NPL in banking system, etc

Some advises from the rating agency is also good to see how to solve some problems in BD economy

 

Shotgunner51

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Unlike China, Indonesia is not having massive land as we are comprising of islands instead, this is why Jakarta - Surabaya route, which currently uses conventional trains and track, doesnt need too much time to go from Jakarta into Surabaya, it is only 9 hours.
I beg to differ, of course the faster the better, Indonesia is not small at all compared to HSR nation like Japan and Korea. However I do agree with you on the investment thought, the government should carefully balance between investment and performance, affordability is one key concern.
 

Indos

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I beg to differ, of course the faster the better, Indonesia is not small at all compared to HSR nation like Japan and Korea. However I do agree with you on the investment thought, the government should carefully balance between investment and performance, affordability is one key concern.
We use train only within cities and intercity around greater Jakarta. The train is already fast enough. For long route inter islands we use planes and for within an island trip people can choose bus, plane and train, train is bit longer but many people enjoy sit inside the train since the route passes so many paddy field and basically Java is only crowded in large cities.

I rather prefer using train to go to cities inside Java as I live in Jakarta, despite longer than plane, because the experience using train is some thing that I see cannot be met with plane, and the ticket is also affordable and the procedure is more simple. For some one in hurry like for business trip they can use plane of course.

Look like it needs 8 hours from Jakarta into Yogyakarta, so basically it can be around 11-12 hours from Jakarta into Surabaya.

1635150839036.png


Executive Class (16 USD) Jakarta-Yogyakarta


Economic Class (4 USD ONLY) For Jakarta-Yogyakarta


Any way, nice to see you come back here. :cheers:
 
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bluesky

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I beg to differ, of course the faster the better, Indonesia is not small at all compared to HSR nation like Japan and Korea. However I do agree with you on the investment thought, the government should carefully balance between investment and performance, affordability is one key concern.
Everything is related to the economy. For a stronger economy, faster train service would be preferable. A faster train is more costly to ride. So, the country's people must have the economic muscle/ source of income to ride them whenever needed and pay a higher charge for the ride.
 

Shotgunner51

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Everything is related to the economy. For a stronger economy, faster train service would be preferable. A faster train is more costly to ride. So, the country's people must have the economic muscle/ source of income to ride them whenever needed and pay a higher charge for the ride.
Exactly
We use train only within cities and intercity around greater Jakarta. The train is already fast enough. For long route inter islands we use planes and for within an island trip people can choose bus, plane and train, train is bit longer but many people enjoy sit inside the train since the route passes so many paddy field and basically Java is only crowded in large cities.

I rather prefer using train to go to cities inside Java as I live in Jakarta, despite longer than plane, because the experience using train is some thing that I see cannot be met with plane, and the ticket is also affordable and the procedure is more simple. For some one in hurry like for business trip they can use plane of course.

Look like it needs 8 hours from Jakarta into Yogyakarta, so basically it can be around 11-12 hours from Jakarta into Surabaya.

View attachment 787605

Executive Class (16 USD) Jakarta-Yogyakarta


Economic Class (4 USD ONLY) For Jakarta-Yogyakarta


Any way, nice to see you come back here. :cheers:
I absolutely agree with you conservatism. Perhaps the best approach is to build those long-term investment for the future, say build tracks & other fixed assets to HSR standards, while short-term investment should be made for present, say buy liquidable assets like rolling stocks at semi-HSR standards. As purchasing power increase, HSR will become more affordable in the future.

HSR, or semi-HSR as you put it, is not just about connecting two hubs, is about boosting the whole economic belt in between. It can become a powerful tool for economic planners.

On topic, loan itself is not a scary thing, it's just business, depends on how one use it. As long as BD is not borrowing to waste on things that generate zero return like arms, the nation is not on the wrong track.

Terima kasih, nice to see you too my old buddy!
 
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itsanufy

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Well if Zahid Sir is okay with it, I am too. He is our usual pessimist guy, but he is so far not raising alarm.



The amount of projects undertaken is not on the downswing by any means...

One pet project that really bothers me however is the expensive bullet train thing from Dhaka to Chittagong (now attempting to be re-named as Hindu "Chottogram" by Bangladeshi Hindutvabadis and AL India-shills). I take it now that ECNEC has finally approved it. The price tag is some ridiculous number like one lakh thousand crore or something.

If you look at the seriously sad condition of 'normal speed' tracks and how they are installed and maintained by these haramkhor suwar railway people and their contractors (using weak under-spec rail that gets wavy like spaghetti three months after installation) and how engines and rakes dance over the tracks, it gives you serious pause on thinking about how bullet trains would fare in Bangladesh. I have been on Railways in Germany and their track is so well installed, trains don't even oscillate an inch in any direction, even at a 100 miles an hour. And we are talking about Normal track, not Bullet train track.

Even India has far better broad gauge track than we do. Our Railway haramkhors probably ordered the cheapest track from India, made of the lightest mild steel that can be bent with a hammer.

These guys need to evict slum encroachers from Railway land first and clean up/rehabilitate track to twice the track size they have now.

A nation incapable of blocking off track (even in urban areas) and enforcing discipline so that vegetable sellers and jhupris (cardboard shacks) don't encroach in railway land - does NOT DESERVE BULLET TRAINS. Just another scheme of siphoning off money as public works percentage and lining their own pockets.

Ba$tards.
Are you sure that its a Hindu name?

Just google to find its origin.
 

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