You can make comparisons between two equals or near equals and/or dilate on their future prospects. But can you compare between two grossly unequal entities? The answer should be obvious. It is silly even to try making such comparisons. In fact, you can successfully settle your debts and eventually become a creditor nation yourself. It all depends on who does what with the debt. Those who use the debt well to generate wealth will have nothing to regret while those who fail will have no choice but to lick their wounds. The present state of relations between Bangladesh and Sri Lankan economy is a glaring example of this altruism. Senior Journalists Enayet Rasul Bhuiyan and Nashir Uddin dived deep into the details to come up with this in-depth story.
Some of our opposition political platforms are noted for their too impulsive statements that Bangladesh is headed the way of Sri Lanka. Surely their rabid comparisons between the two countries have no relationship to objectivity or reality. Their strategy is simple: smear your political opponents with make believe statements.
The information chief of Adolph Hitler, Herr Goebbels, was famous for his quote that gullible people will start believing a lie if it is repeated again and again within public audibility. Hopefully, Bangladeshi people are not so naive or gullible that they will fall so easily for the Goebbelsian prescription.
Even a not-so-well-informed person but honest and upright otherwise in Bangladesh will hesitate to draw a contrast between Bangladesh and Sri Lanka. Indeed, it should seem preposterous to him or her that such a comparison can be drawn or the need or justification for it exists.
DELUSIONAL POLITICS OVER DEBT MANAGEMENT
As it is, the Sri Lankan government has officially admitted very recently that it will have to default on its international payment obligations. This declaration came amid a situation of curfew in Sri Lanka’s major cities as angry mobs are seen battling police and other authorities for supplies of food and fuel which are a trickle. Sri Lanka has no means to import or pay for such imported goods on an emergency basis.
Sri Lanka’s foreign exchange (forex) reserves have depleted by 70 per cent to USD 2.3 billion as of March in the past two years – thus impacting the country’s ability to pay for its imports. It has debt payments of about USD 4.0 billion through the rest of the year. The country’s inflation rate is at an elevated level.
Compared to this profile of the island nation, the view of Bangladesh is as orderly and stable an entity as it can be. Bangladesh presently has an ‘unspent reserve’ of well over 40 billion US Dollars, which is clearly forty times more than the pittance that Sri Lanka has at present as its reserve.
In 2021, Bangladesh agreed to give Sri Lanka loans of at least $200 million from its foreign exchange reserve under a currency swap deal. The currency swap initiative was taken after Sri Lankan Prime Minister Mahinda Rajapaksa’s visit to Bangladesh to attend the joint celebrations of the golden jubilee of Bangladesh’s independence.
This asking for a loan from Bangladesh by Sri Lanka was exemplary of how times have changed. There was a time in the seventies and eighties when Bangladesh’s Finance Ministers had to visit Paris ‘very punctually’ to attend the consortium meetings of donors to know what amounts would be disbursed to this country in the next fiscal year.
Now, the President of a neighboring country visits Bangladesh for a foreign currency loan to hedge itself from its foreign currency reserve running dry. The reserve position is so precarious for Sri Lanka or its inability to make payments in foreign currencies that it now offers barter form of payments. For example, sending its tea to a buyer and paying with tea and not cash.
As it is, Sri Lanka presently has some 1.2 billion dollars left in its reserve to meet all demands for all kinds of international debt-related payments being made on it or are about to be made whereas it needs right away over 5.0 billion dollars just to avoid being declared a bankrupt country in the financial sense and branded a pariah country for the same reasons.
Apart from the foreign currency reserve, the other major macroeconomic indicator of a country to get an idea about its future solvency or not is its gross domestic product (GDP) growth. The GDP growth in Bangladesh is strong. International lending organizations like the Asian Development Bank (ADB), World Bank (WB), Asian International Infrastructure Bank (AIIB), International Monetary Fund (IMF) etc have all praised Bangladesh for the outstanding resilience of its economy or its substantial GDP growth even amid the challenges posed by the Corona pandemic. With the Corona challenge enfeebled in Bangladesh, its GDP growth is expected to pick up and do much better compared to the same in recent years.
BANGLADESH–SRI LANKA COMPARISON DRAWN
The ADB forecast of GDP growth for Bangladesh is 6.9 per cent in 2022 and 7.1 per cent in 2023. These are but conservative estimates and could be far surpassed when the tally is taken at the end of these periods. For Sri Lanka, even the best case scenario of GDP growth is 3.1 per cent at most, which should clearly show how the two countries would be headed in the short and longer terms. Bangladesh’s GDP growth would be robust or nearly thrice as that of Sri Lanka.
Bangladesh in the present year and beyond is very likely to be benefited by steady and increased flow of foreign investments for retaining its macroeconomic stability and reasonable financial discipline. Sri Lanka with its sinking economy and domestic violence cannot expect such improvement in its foreign investment flows. As it is, Sri Lanka has fallen into its present debt trap from poor planning for which it has none to blame but itself alone.
A comparison is drawn between Bangladesh and Sri Lanka perhaps because both the countries have gone for mega projects or infrastructure related projects for development. But the striking difference between the two is – while Sri Lanka has gone for mega projects, the future of these mega projects remain in the realm of possibilities only. The ones being implemented by Bangladesh are much more hard-headed and realistic with assurance of their starting to pay off immediately on completion.
One example should suffice. The Padma Bridge project is the biggest ever such mega project in Bangladesh. It is expected to go into service shortly within months. But it has entirely been financed locally by the government of Bangladesh (GOB). Thus, on completion, it will not carry the burden of a debt overhang or servicing of foreign loan labilities. Other mega projects in Bangladesh are similarly locally financed considerably and would not create pressure for debt servicing immediately on completion.
MEGA PROJECTS AREN’T ALWAYS MEGA PROBLEMS
The case of Sri Lanka’s mega projects is mainly that these are based mainly on their earlier viewed potential, which may not eventually unfold. One such example is the Hambantota seaport in southern Sri Lanka, which is based on projections that it would eventually turn into a Singapore-type economic hub or entrepot.
But what about Singapore’s present plan to add to its capacities. With this happening, Singapore would retain its attraction for its current and probable new foreign users. In that case, so much invested in Hambantota would simply go to waste from sheer lack of users. Recent statements by Chinese, Indian and US leaders also suggest that they are no more so interested to set up naval bases in Sri Lanka to support their various naval strategies. In that case, too, Hambantota would be a poorly perceived case of investment.
Let’s look at how mega projects in Bangladesh are seen as about to become incremental right away on completion. The Padma Bridge will commence operation a few months from now, very probably in June. It means from June its users will be paying back resources to it, which would lead to recouping of the resources spent on building it.
The Rooppur nuclear power project is another heavyweight mega project in Bangladesh. It is expected to take-off in 2023 with the installation and operation of one of its two nuclear reactors. The pace of work on this project clearly suggests yet another positive outcome. From commissioning of the first reactor, Bangladesh would be getting over 1200 megawatt of inexpensive added electricity and the users of this electricity would be paying their bills that would be routed to pay back to the Russian company, which is building and installing the reactors.
The newly-established Payra seaport in southern Bangladesh is another major mega project, which is already servicing a great many number of customers and from its earnings aspiring to invest much of it to expand and improve its capacities that would further increase its earnings in the long run. Thus, there is no way to describe these Bangladeshi mega projects as pie in the sky type of projects and that we are opting for a gamble by allowing them to be implemented.
Notwithstanding the above aspects, the leadership in Bangladesh – be it the political or military leaders – were never too profligate or engaged in populism at the cost of economic or fiscal soundness and sobriety. This restraint on the part of our leaders and decision makers is the main reason why Sri Lanka today finds itself in a debt trap but Bangladesh is in a confident and relaxed mood over these matters.
Bangladesh Prime Minister Sheikh Hasina underscored several times since the Sri Lankan crisis began that we must beware and must not admit any recklessness in the formulation and execution of public policies with financial or fiscal implications. The PM drew attention several times to the fact how line ministries and government departments have been sternly ordered to keep themselves abreast of things and not to allow any slag to creep into policies and decision making and execution.
EXTERNAL DEBT SERVICING CAPACITY
In the last fiscal year or 2021, Bangladesh government paid $1.86 billion for external debt servicing – $1.2 billion in principal amount and the rest in interest – keeping its unspent foreign currency reserve at over $44 billion. In contrast, Sri Lanka has only $1.5 billion as reserve left and very recently declared its inability to honour any claim on its reserve till its total foreign debt can be restructured or rescheduled by external bailout guarantees, which is yet to happen. Sri Lanka faces financial bankruptcy if it fails to secure such bailout guarantees.
Bangladesh can justifiably feel proud that ever since it became independent, it never faced even for once the need for a debt default or the need for debt rescheduling or bailout. Over the last over half a century of its sovereign existence, Bangladesh is on record for not even once pondering the possibility or need for debt rescheduling – let alone declaring an actual debt default. This track record speaks volumes about the prudence and abilities of its leadership at different levels to retain an enviable record of debt management all through.
In this period, our former overlord, Pakistan, had to seek debt rescheduling and restructuring time and again. Saudi Arabia and other Arab countries came to Pakistan’s rescue every time considering political and security reasons. But Bangladesh through stresses and strains notwithstanding, kept its head well above the waters based on its own basic integrity and from a consciousness that it must not risk its financial strengths by allowing itself to be carefree in areas of debt management. The government under PM Sheikh Hasina – especially in the last over one decade – was seen diligently keeping on a leash tendencies towards runaway expenditures as a whole.
WHAT’S DEBT-TRAP REALLY?
Debt-trap is an expression, which nowadays is linked mainly to a sinister plot on the part of China to lure unsuspecting or direly needy poor countries to take loans from China and to eventually fall into its lustful embrace losing its freedom. There can be no more a gross model of oversimplification of a phenomenon with definite political overtones.
While Western countries see their own loans and financial assistance given to poor countries as a sort of the burden borne by the rich or rich man’s burden as part of the post-colonial or imperialist legacy, they are prone to painting a picture of China as a diabolical plotter seeking to bring these countries perpetually to its fold by handing out tiny quantities of cash from its trillions of dollars of foreign currency reserve. China’s foreign exchange reserves stood at $3.25 trillion at the end of December, 2021.
Now let’s look at this altruism. Since the formation of human society millennia ago, the relation of a rich man with his poor neighbour never changed. The rich man hardly ever needs the poor one. But the poor frequently needs dole outs from his rich neighbour. This mode of exchange never changes and for the obvious reasons. We have always understood the proverbial expression of it’s a rich man’s world and it never changes like an axiomatic truth.
There will always be countries rushing to China to get a piece from its huge or abundant unused resources to tide over their difficult conditions. They will not find anything wrong in this rich and poor relationship. Most of them will feel that no wrong is involved and that good days will come to them, too, and then they will pay off their debts by, say, selling their primary produce at higher prices and making a profit thereon. But they may be wrong and might be required to incur more debts just to service the existing ones. If the process continues then they will be inexorably pulled towards the debt trap.
POSITIVE PRECEDENCE OF DEBT MANAGEMENT
Managing debt may not always be the same story in many cases. For example, many countries in the previously rich European nations turned poor after the World War II in the course of the destructions wrought by the war. The United States was the only country virtually unscathed in the physical sense by the war. It had vast untouched resources it could profitably lend out or loan to allies in Europe.
Thus, the US under the Marshall Plan poured billions of dollars into the war-devastated Europe. The move was mutually very rewarding. European countries were found never short of cash to be taken on huge programmes of building infrastructures and industries leading to their full economic recoveries. They could pay off their debts to USA, but also became mightily resourceful on their own again on the strength of their full economic recoveries. Here is a positive example of what debts can do.
This is an example to show how debt is not necessarily a bad thing always. It will not necessarily spawn more debts and make you poorer or tie you perpetually to the apron strings of the creditors. You can successfully settle your debts and eventually become a creditor nation yourself.
It all depends on who does what with the debt. Those who use the debt well to generate wealth will have nothing to regret while those who fail will have no choice but to lick their wounds. The present state of relations between Bangladesh and Sri Lanka is a glaring example of this altruism.
SAGA OVER ‘CHINA DEBT-TRAP’
The whisperings and even vilifications hurled at China for luring poor and vulnerable countries into its debt trap is more fiction than facts. As stated above, it’s just like the stock market everywhere. Those who enter it and buy or sell in it do so knowing its risks as well as prospects of gain. No authority or government can be blamed for the entrants into it suffering loss except for bad luck.
The Chinese are not tempting debtor nations to come to them for loans and other forms of financial assistance incurring debts. They do so, willingly, understanding the full implications of loss and gain. If the debtor countries fail to pay their debts in time, then that speaks about their inept debt management and nobody in all fairness should be blamed for it.
The US is considered to have one of the world’s strongest economies, yet that doesn’t negate the fact that it is always included in lists ranking countries by debt. Its current debt outstanding is more than $28.42 trillion. The Chinese who currently have the biggest foreign currency reserve have invested heavily in the US not fearing that the recipient all on a sudden will fail to service its debts. This has not happened and most unlikely to be allowed to happen given the strongest mutual political and economic resolve on both sides to that end.
Thus, the Chinese debt needs to be essentially viewed as part of the existing global culture of incurring debts and utilizing the same for reciprocal churning of economies of both debtor and creditor nations. The ideal of a debt-free world is inevitably destined to be wishful thinking than anything tangible.
WHAT’S the GOVERNMENT’S TAKE ON THIS?
Bangladesh government is managing foreign debt very carefully. For this reason, Bangladesh is not at risk of defaulting on foreign loans. Compared to Sri Lanka, the amount of soft loans in Bangladesh is much higher. So, the interest rate of the loan is very low; and the maturity period or the date of final repayment of the loan is also greater. In addition, the size of the economy of Bangladesh and the amount of exports is larger than the sum of Sri Lanka as well as Pakistan. Bangladesh’s foreign exchange reserves are also double the combined reserves of these two countries in South Asia. Sri Lanka’s economy is on the verge of collapse, on the other hand, Pakistan is under bailout of IMF. In this situation, the Prime Minister’s Office (PMO) gave above information while informing the Prime Minister about the capacity and sustainability of Bangladesh in managing foreign debt. In response to the question of PM Sheikh Hasina, the bureaucrats concerned with the macro-economy, revenue collection, management of foreign debt and management of foreign exchange reserves presented the overall external and internal financial situation of the country in detail. They said that apart from the strong position of Bangladesh in repaying foreign loans, Sri Lanka, which is going bankrupt due to debt, is not comparable to Bangladesh in terms of revenue rebates and collection. After analysing the information for three hours, Prime Minister Sheikh Hasina was also satisfied with the overall economic situation of the country, Chief Secretary to the Prime Minister revealed.
Mentioning in the Parliament that the economic situation of Bangladesh will not be like that of Sri Lanka, Prime Minister Sheikh Hasina said in her concluding address of the 17th session of the National Assembly on April 6, “We have been repaying all the development loans we have taken since the formation of the government. Our financial foundation is very strong. I want to say that, we are very careful.”
Meanwhile, a senior member of the Cabinet, Planning Minister MA Mannan has noted that the economies of Bangladesh and Sri Lanka are completely different. Mentioning that some are trying to compare Sri Lanka’s situation with Bangladesh, he said that it is wrong to apprehend problems in Bangladesh drawing comparison with the ongoing turmoil in Sri Lanka, which has been fuelled by the South Asian country’s prolonged energy crisis and fiscal mismanagement. “Bangladesh government does not do any unnecessary work or take unnecessary projects in any circumstances. However, some quarters are trying to match the current situation in Sri Lanka with Bangladesh, which is not acceptable at all considering the economic and social aspects of the countries,” he added. Mannan said, “The economies of Bangladesh and Sri Lanka are completely different and the fundamentals of the economy are also unalike. However, we are paying close attention to the opinions of experts and researchers. I think there is no reason to fear a situation like Sri Lanka in Bangladesh.”
Another representative of the government, Road Transport and Bridges Minister Obaidul Quader has said that those who say Bangladesh will be like Sri Lanka are either saying these unknowingly or intentionally for spreading propaganda. Our capital account is not as open as in Sri Lanka, no one can send dollars abroad if they want to. If you want to send money abroad for education, medical or any other purpose, you have to open an account and then send it. Many are talking about the mega projects, in which case, the Padma Bridge is not dependent on foreign loans. Sheikh Hasina is building the Padma Bridge with our own money, not with foreign loans. No such big mega project is done with any foreign loan. Most of Sri Lanka’s loans have to be repaid in a short period of time, on difficult terms and at higher interest rates. On the other hand, most of our debts have to be repaid in a long term with comparatively low interest rate. After overcoming the pandemic crisis, the economy of Bangladesh is now at a balanced level. There is no such crisis anywhere in Bangladesh. And, Bangladesh will never be Sri Lanka.”
What lending agencies say?
Lending agencies like the World Bank and Asian Development Bank (ADB) have rubbished talks of Bangladesh’s any economic fallout of Sri Lanka’s stature.
WORLD BANK’S ASSESMENT
Bangladesh remains at low risk of debt distress, according to the World Bank’s newest assessment. Bangladesh won’t face a crisis like Sri Lanka’s for its current level of comfortable foreign debt-GDP ratio, the World Bank says on a review of the country’s latest economic condition. On April 13, World Bank released ‘South Asia Economic Focus Spring 2022’ report entitled ‘Bangladesh Development Update: Recovery and Resilience amid Global Uncertainty’ providing information on Bangladesh’s growth. The development update says that public debt remains sustainable. Additionally, the March 2022 joint World Bank-IMF Debt Sustainability Analysis assessed that Bangladesh remain at low risk of external-and public debt distress.
“Bangladesh is not in the position like Sri Lanka’s. Its debt-GDP ratio is still very low at 17 per cent. But, Bangladesh can learn lesson from its neighbour and shall ensure best use of the external loans,” says WB Chief Economist for South Asia Hans Timmer in this regard while briefing South Asian journalists in Washington after unveiling the ‘South Asia Economic Focus (SAEF)’ report simultaneously across the South Asian nations. “Although there has been some increase in the debt for Bangladesh, this is still at a very low level. On the other hand, foreign currency reserves in Bangladesh can cover more than six months of imports, which is very solid,” Timmer said.
Meanwhile, The World Bank has reported that poverty in the country has been reduced as the growth rate of Bangladesh has increased by overcoming the effects of the pandemic and Bangladesh’s Gross Domestic Product (GDP) growth could be 6.4 percent in the current fiscal year which will grow in the next fiscal year leveraged by its strong export growth.
However, a slowdown in growth in major export markets, particularly in the European Union, could, in turn, hamper export growth, the WB report notes. The economic growth faces new headwinds as global commodity prices increase amid the uncertainty created by the Russia-Ukraine war, it adds. The SAEF report says Bangladesh’s GDP growth is expected to remain resilient in FY2023, riding strong domestic demand.
When asked, the WB Chief Economist for South Asian, Hans Timmer said Bangladesh could learn three things from the Lanka crisis that triggered political turmoil. “Bangladesh should firstly be cautious on the borrowing limit of bilateral loans and their utilisation, secondly, prudent use of current comfortable forex reserves, and thirdly higher domestic resource mobilisation against extended public spending,” he added.
ASIAN DEVELOPMENT BANK’S FORECAST
The Asian Development Bank (ADB) has revealed a growth forecast in its latest report titled ‘Asian Development Outlook 2022’. In the report, ADB says that the gross domestic product (GDP) of Bangladesh will continue to maintain the similar strong growth at 6.9 percent in the current fiscal year (FY 2022) as it did in the previous term (2021). GDP growth in FY 2023 is, however, expected to edge up to 7.1 percent. Private consumption will continue to be the main contributor to growth, buoyed by a modest increase in remittances. Thus, Bangladesh will not be in a debt distress like its neighbouring country.
Responding to a reporter’s question at the launch of the ADB report ‘Asian Development Outlook-2022’ on April 7, Edmond Ginting said “Bangladesh’s debt management is very good. Sri Lanka did not have that. In addition, the debt-to-GDP ratio is in a tolerable position. So there is no reason to fear. Bangladesh is in a better position than Sri Lanka. Bangladesh will not be in crisis like Sri Lanka.”
According to the ADB, foreign trade as well as domestic economic activities have gained momentum, which is reflected in Bangladesh’s growth forecast. The implementation of the government’s incentive package and the flow of remittances have also played a role in this regard. If this trend continues, the GDP growth in the 2022-23 fiscal year could reach 7.1 percent.