Bangladesh faces reduced foreign financing and rising debt liabilities

[Skull and Bones]

Net foreign financing is set to drop by $1.5 billion next year​

As global interest rates continue to rise, Bangladesh faces a considerable increase in its foreign debt servicing liabilities.

To compound the challenge, an internal calculation by the Economic Relations Division (ERD) reveals that the government is expected to see a $1.5 billion decline in net financing from external sources next fiscal year and $2 billion the following year.
Experts said this double blow threatens to shrink the government's spending capacity, posing significant obstacles to its ability to allocate funds effectively.


ERD data, seen by The Business Standard, indicates that Bangladesh's interest payments on foreign loans in FY24 are projected to exceed $1 billion, for the first time in the country's history, compared to just $496 million two years ago.

Taking into account the principal amount, Bangladesh is obligated to pay a total of $3.57 billion (Tk37,128 crore) to its foreign debtors in the current fiscal year.

The amount is almost equivalent to the country's health budget and more than Tk34,722 crore earmarked for the current fiscal year for the primary and mass education ministry. Also, the figure exceeds the money spent by the government for the construction of the Padma Bridge.


According to ERD estimates, repayments for foreign loans and interest are anticipated to exceed $4 billion over the course of the next two fiscal years.


Though net financing will increase in the current financial year on the back of higher disbursements and lower repayment pressure, it is projected to decline to $7.4 billion in FY26 from $9.4 billion this fiscal year, posing a fiscal challenge for the government.


ERD officials said that due to the impact of the Russia-Ukraine conflict, the secured overnight financing rate (SOFR) has increased, leading to a rise in market-based foreign loan interest rates.

The current SOFR stands at 5.05%. After adding the spread, Bangladesh has to pay an interest rate of 6% to 7% for foreign loans. As a result, the pressure to repay the interest has increased, they said.

Dr Zahid Hussain, former lead economist of the World Bank's Dhaka office, said the market-based lending rate was less than 1% or close to zero even two years ago. During that time, both the government and private institutions took a lot of loans from the international market.

"The grace period of many of the loans that have been taken in recent times have not ended. Interest payments are increasing mainly for loans taken earlier. Because the SOFR rate has increased and variable speed has been added," he said.

"As these loans have already been taken, we have to repay them. There is no other option but to increase the fiscal space. Another option is that the loan agreements can be renegotiated. It is possible to do this for many loans after a certain period of time," the eminent economist stated.

Dr Zahid Hussain further said, "We have to renegotiate the loan agreement and decide whether we will stay with the variable interest rate or move to the fixed interest rate. There is also an option to repay the entire amount. But it is not possible to pay the full amount amid the dollar crisis."

He added that due to the global situation, it would not be wise to expect interest rates to decrease in the next two years. However, it can be projected that the trend of increasing interest rates will stop at the end of the current financial year.

Ahsan H Mansur, director of the Policy Research Institute of Bangladesh, said that Bangladesh's foreign debt has increased along with market-based debt.

He noted that interest rates have increased in the international market recently, and there is no sign of this trend abating. As a result, the cost of repaying loans will increase, which is natural.

Ahsan H Mansur also said that fixed interest rates are gradually increasing. This means that debt is becoming more expensive. Therefore, he advised that loans should only be taken for good projects that will generate returns.

According to the ERD, the government will have to make $1.19 billion in interest payments on development project loans and budget support loans in the current fiscal year.

ERD projections indicate that in the 2024-25 FY and 2025-26 FY, the interest payments will increase to $1.31 billion and $1.41 billion, respectively.

Earlier, in the 2021-22 FY, Bangladesh made interest payments of $496 million on its debt. Based on the data available as of 16 June 2023, interest payments on external debt for the 2022-23 FY were projected at $944 million.

The ERD has further highlighted that not only will interest payments increase but also the principal payments will surpass $3 billion annually within the next two years.

In the 2021-22 FY, Bangladesh repaid $1.418 billion in principal on loans to development partners. It was $1.846 billion in the 2022-23 FY as of 16 June 2023, which could rise to $2.37 billion in the current fiscal year.

Expiration of the grace period on several major projects will result in principal repayments of $2.90 billion and $3.31 billion respectively in the next two fiscal years.

$4 billion in interest and principal payments next fiscal year

According to ERD data, the total estimated amount to be paid in the current fiscal year, including principal amount and interest, is $3.565 billion.

However, the interest and principal repayments will exceed $4 billion in the next financial year. In 2025-26 FY, Bangladesh will have to pay development partners $4.72 billion in principal and interest.

As per the ERD, in 2021-22 FY, Bangladesh paid $1.914 billion in principal and interest payments. The amount was $2.790 billion in 2022-23 FY.

ERD officials said that the post-Covid-19 economic recovery and the situation caused by the Ukraine-Russia war have increased pressure on interest payments for Bangladesh, which has taken budget support from the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB) at the SOFR rate.

The budget support has increased pressure on interest and principal payment of loans to development partners. In addition, the grace period for loans taken for several major projects is ending in the current financial year, which means that principal payments for these loans must be made in these projects, they said.

Net financing to drop

The ERD report predicts that net foreign financing will increase in the current year, but will decrease in the next two years.

Net financing is calculated by subtracting the principal amount from the foreign loan disbursement.

According to ERD data, net financing will increase in the current financial year to $9.409 billion, from $8.561 billion in the previous year. Net financing is expected to decrease in the next two financial years to $7.928 billion and $7.413 billion, respectively.

Foreign loan disbursement crossed $10 billion for the first time in 2021-22 FY, and the ERD expects this trend to continue. Foreign loan disbursement is projected to reach $11.784 billion in the current financial year. Although the amount will decrease in the next two financial years, it will remain above $10 billion, as per the ERD.

Bangladesh faces reduced foreign financing and rising debt liabilities

Net foreign financing is set to drop by $1.5 billion next year

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Bangladeshi economy is just fumes and no substance, running on borrowed cheap money. Which is quite obvious for a country which cannot assemble a cycle after 50 years of independence. Am I right or Am I right?

 

[Musings]

Bangladesh economy: A case of 'development miracle'​

Harvard University professor Joseph Noe defined soft power as a nation's power deriving from economic, political and cultural influence in contrast to military power. Recently, UK-based accounting firm Brand Finance released the Global Soft Power Index 2023 report – which said the brand value of Bangladesh increased by 37% from $371 billion in 2022 to $508 billion in 2023.

Bangladesh has become the fastest-growing brand nation in the world. That is, the brand value of Bangladesh increased the most last year. Bangladesh is followed by Uzbekistan (32%), Azerbaijan (30%), United Arab Emirates (24%) and Georgia (23%).

Bangladesh has the second highest brand value in South Asia, right after India, which is more than twice that of Pakistan and 10 times that of Sri Lanka. The report specifically states that Bangladesh is an example of unprecedented economic development and an inspiring model of poverty eradication as declared by the World Bank.

A few days ago, Boston Consultative Group, one of America's largest management consulting firms, published a special report on Bangladesh under the title "The Trillion Dollar Prize." During 2016-2021, Bangladesh's average GDP growth was 6.4%. This growth rate is twice the average of lower-middle-income countries and much higher than the world average (2.9%).

The key drivers for the economic growth of Bangladesh are increasing consumer spending, an emerging young workforce, high economic resilience and digital momentum, increasing government spending, rapid private sector investment growth, etc. After independence, government expenditure accounted for 85% of total investment, while private sector investment accounted for only 15%.

When the Eighth Five-Year Plan was drafted, private sector investment was 87% and public investment was 17%. One thing is clear – the economy of Bangladesh is one of the most sustainable economies in the world. During the global financial crisis of 2007-2009, Bangladesh's annual growth rate was 5.5%, which was higher than the average growth rate of India, Indonesia, the Philippines, Thailand and the world average.


During the Covid-19 pandemic, the growth rate of Bangladesh was 3.4%, whereas this rate was negative in most of the countries including the major economies of the world. The Center for Economics and Business Research (CEBR) projects the economy of different countries of the world every year, which is known as the "World Economic League Table".


And, according to their 2023 report, Bangladesh's GDP in 2037 will be $1628 billion (more than one and a half trillion), which means Bangladesh will be the 20th largest economy in 2037. In 2022 Bangladesh's position was 34th.


Even a decade ago, Bangladesh's success was considered "accidental." Despite being a country prone to natural disasters, unfavourable conditions and corruption at almost all levels, the recent economic and various social progress of Bangladesh is now considered a "Development Miracle" or "Development Labyrinth."

A similar opinion is found outside the academicians that despite being a poor country, Bangladesh is able to achieve progress in social indicators compared to other similar countries.


Since the second decade of the 21st century, qualitative changes in planning have played a major role in poverty alleviation and employment of the people of Bangladesh. The national five-year plan shifted its focus from the agriculture-based economy to the industrial and service sectors.

After independence, more than half of the country's GDP came from agriculture. Now agriculture contributes only about 12% of its GDP. On the other hand, the contribution of the industry increased from 8% to 35%.

In the last decade and a half, the government has consistently given top priority to agriculture. As a result, Bangladesh is now self-sufficient in food grains. Rice production almost quadrupled in the past 50 years despite the decline in cultivable land. Not only food grains but also fish, meat, eggs, milk and fruit production has increased to a large extent.

As a result of the government's agriculture-friendly policies, Bangladesh made outstanding contributions in the fields of agricultural mechanisation, agricultural machinery subsidies, agricultural research and innovation. Moreover, the entrepreneurial spirit at the grassroots level and the ability to adapt to the adverse environment have greatly accelerated the socio-economic development of Bangladesh.

The last decade can be called the golden age of Bangladesh's development. Bangladesh managed to achieve most of the Millennium Development Goals. As a result, Bangladesh was awarded more than a dozen international prestigious awards.

The country was promoted to a lower-middle income country and fulfilled the criteria for becoming a developing country twice in 2018 and 2021 from Least Developed Country status.

The government's macroeconomic policies played a key role in Bangladesh's transformation. Investment continues to grow as the economy remains stable in the long term. Bangladesh has the highest average gross domestic product or GDP in the last decade after China due to its stable economy.

Moreover, the government has taken up several important infrastructure-based mega projects to improve the business environment. Due to the provision of road connections and electricity facilities in almost every upazila, the growth centres and markets are now connected and the economic activities have become dynamic.

Recently, the Bloomberg news agency praised Prime Minister Sheikh Hasina for her timely reform measures to counter the negative impact of the global economic crisis and maintain economic stability.

Digital transformation is now underway in the country and there are 177 million mobile users. Internet user rate has increased by 70% in the last 10 years. The size of the digital economy grew from $1.7 billion in 2019 to $3.5 billion in 2022.

The government is also creating an enabling environment for the economy by tripling its spending in the last decade. Bangladesh is now the ninth-largest mobile market in the world. Bikash is the world's leading mobile financial service provider. With more than 650,000 freelancers, Bangladesh is the world's second-largest provider of online labour (15% of the world's total freelancers).

Under the guidance of the Prime Minister, the unprecedented Centenary Delta Plan 2100 is formulated to deal with climate change and manage agriculture and water resources. The National Social Security Strategy was formulated in the middle of the second decade of the 21st century with a desire to make the social security system more effective and dynamic.

The government is working to increase investment, create employment and alleviate poverty with the aim of making the country a developed and smart Bangladesh. Necessary physical and social infrastructure is rapidly developing to keep pace with the plan.

According to the Labor Force Survey 2016-17, 85% of our total employment is in the informal sector. In the case of women, this rate is about 92%. Entrepreneurship is now being created in villages and rural areas, and, as a result, small and medium industries are developing.

The expansion of the banking sector as well as microcredit has led to greater participation of people in economic activities. The latest Household Income and Expenditure Survey revealed that the participation of women in the workplace has increased from 36.3% to 42.68% in 2022-23.

The unemployment problem has come down from 4.2% to 3.6%. People are now risk-tolerant and investment-oriented due to the expansion of growth centres in rural areas and the modernisation of agriculture and infrastructure facilities. Multipurpose agricultural activities have expanded.

Along with economic progress, increasing social mobility is playing a controlling role in the development of Bangladesh. If there is no major social or political unrest in near future, this development will continue at an incredible pace.

Bangladesh economy: A case of 'development miracle'

Bangladesh has become the fastest-growing brand nation in the world, making it an example of unprecedented economic development and an inspiring model of poverty eradication in recent years

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Little Indian (that is inactive on PDF) - wakes up nice and early not starving (coz hes escaped to the USA) - manages to get access to the internet. Puts into search engine - shit news about Pakistan and Bangla - finds something - foams in his mouth and ejaculates it onto this forum in glee - wanting to troll and make out all of Indian neighbors are suffering whilst India becomes a shupapowwaa.

This is precisely why Indian are universally hated across the world. Rather than being humble and taking a look at their own inadequacies - take pride at others misfortune.
A nation yet again humiliated with this recent escapade with the Manipur - the infestation of Indians sleeping on the streets in London is an all time high - and internal grumblings with millions starving and begging - but tell you what lets deflect and look at others and gloat.

A reason to today for me to thank my fore fathers for letting me say - thank god im NOT Indian......