Can Bangladesh pay back 12 billion dollars loans by the end of 2023? A burning question is flying among people. This question was first surfaced by the BBC Bangla, an online news portal of globally reputed news outlet, on 10 August 2023.
But this story has other side to say. Let’s go for the facts check first. The BBC outlet opined that in the context of diminishing foreign currency reserve at central bank and crisis in foreign earnings in US dollar may make the situation aggravated. Quoting Dr. Ahsan H. Mansur, Executive Director of Policy Research Institute, BBC Bangla wrote that Bangladesh did not have capability of repaying such a big loan and the government had not taken effective measures to combat the situation. As reported, Mr. Mansur also told BBC Bangla that the government could not realise magnitude of the problem. The news also informed that because of the Russia-Ukraine war, interest rate of global lending had increased and repayment period had reduced.
COVID-19 virus started spreading across the globe in December 2019. Since January 2020, it was engulfing trading partners of Bangladesh in western countries and source of remittances in the West Asia (middle-east). To combating COVID-19, Bangladesh sealed off international ports at the same time and locked down the country in early March 2020. Our forex reserve at the end of January 2020 was US$ 32.4 billion. During the pandemic both of export and remittance increased significantly because of some appropriate measures took by the government. In August 2021 the reserve increased to all time high, US$ 48.1 billion. Meaning, during the pandemic our reserve shot up by US$ 15.7 billion. Another reason for such historic reserve was lowest level of new investment and expansion of capacity of an existing industry by private sector. The government had also kept investment in infrastructure at its lowest possible level. Both the sectors did so from the apprehension from unprecedented impact of COVID-19.
By August 2021 people of almost all the major countries have taken at least two dozes of Covid-19 vaccine and opened up their economy. Our economy started investment again and the reserve started depleting. By February 2022, immediately before the start of Ukraine War, the reserve reduced by US$ 2.1 billion to reach to US$ 45.9 billion. This reduction was quite normal. Reserve situation started worsening further because of Ukraine War that triggered huge economic sanction on Russia by western countries. Russia was the 40% supplier of energy to Europe. Because of sanction on Russia energy prices shot up to the level that the world never seen before. In spite of many measures taken by the government and the central bank that reduced import by about US$ 14 billion, our imported energy depended economy suffered a lot. By January 2023 our reserve came down to the level of January 2020, i.e., US$ 32.2 billion. The global energy and food price turmoil exposed our suppressed forex rate that dropped by almost 27%. The devaluation impacted price level of the country, which was hovering around 10% at the end of July 2023. Our forex reserve is now very close to the stability, as it remains at same level during last few months and will began rising within short period of time as the global energy market coming down to pre-pandemic level. In short, in true sense, borrowing capacity of the country has not been eroded, the country is holding its capacity of pre-pandemic level and neither the government not the private sector has entered into new agreements with foreign lenders for big borrowings.
Immediately after the start of Ukraine War, realising significance of the future impact of the war Bangladesh government has increased duties and taxes on import of luxuries and non-essential items. The central bank also increased LC margin at the same time for discouraging import of such items. It is untrue that the government had not taken adequate measures to arrest downfall of forex reserve. Bangladesh’s measure impacted import drastically. During FY 2022-23 our import of luxuries and non-essential items reduced by 15.8% or US$ 14.1 billion, that eaten-up the excess reserve piled up during the pandemic.
Interest rate of foreign loans from private sector has increased in the Forex Reserve Jan 2020 Jan 2021 Jan 2022 Jan 2023 32.4 48.1 45.9 32.2 IN BILLION USD international market because of raising interest rates by western central banks in order to thwart their inflation that went to a level that they did not see in last forty years. As of March 2023, the government debt was 77% of total external borrowing of the country (US$ 95.7 billion) and private sector borrowed the remaining. Government has never borrowed foreign currencies from international private sectors. Therefore, government borrowings are not exposed to higher interest rates. Private sector borrowing from international private sector market has reduced significantly by about US$ 3.8 billion or by 14.5% during June 2022 to March 2023 because of some belt-tightening measures taken by the central bank. Thus, exposure to higher interest rate has reduced significantly. Our government borrows mainly from development partners like WB, IMF, JAICA, IDB and in terms of suppliers’ credit from our trading partners. Since availability of these loan depends on the relationships between the countries, our credit worthiness or repayment period have not suffered in any sense. Rather our global image, geopolitical importance and commendable leadership in global stage has improved expressively and relationships with development partners and other friends are better now. Neither lending capacity not higher interest rate will affect our economy in foreseeable future. BBC Bangla reported, Bangladesh will have to repay US$ 12 billion within last five months of 2023. According to the report $3 billion out of this $12 billion is for repayment of interest and principals of government borrowing and rest $9 billion is private sector loan. According to ERD information, as published in The Daily Star, the debt servicing by the government for full FY24 is US$ 3.28 billion, not for last five months of 2023. If we average out the figure, debt servicing for last five months of 2023 would be $ 1.4 billion dollar, not US$3 billion.
Indeed, the BBC Bangla report has a major weakness not providing break-up of $9 billion private sector loan. According to ERD information, short-term private sector loan was $ 14.1 billion as of March 2023. Majority of these loans are buyer’s credit and deferred payments, which stood at US$ 9.7 billion. These credits rise with opening of import LCs and reduces when the import payments are made. Repayments of these sort of credits are not made at once. It is like a current account balance, ups and downs. In no situation we can predict that the country will have to repay all the amount in one payment. Reporting the amount as payable within last five month of 2023 is nothing but a yellow journalism.
