No reason for Bangladesh to face a financial crisis like Sri Lanka – OpEd – Eurasia Review

Since gaining independence, Bangladesh has managed to repay its foreign debt to maintain its strong reputation abroad, analysts say.

Few prominent economists have noted that the country has never defaulted on foreign loans due to its careful management of external debt, which features a significantly higher proportion of concessional loans with longer maturities.

There is a lot of discussion regarding Bangladesh’s external debt at different levels following the economic crises in Pakistan and Sri Lanka.

However, according to economic specialists, Bangladesh is not in such great danger because its debt-to-GDP ratio is still below the safe level of 13%, compared to almost 50% for Sri Lanka.

Bangladesh’s national debt (as a percentage of GDP) is much lower than that of Pakistan, Sri Lanka and Afghanistan.

Sri Lanka’s national debt as measured by the World Development Indicators (WDI) in 2011 was almost 70% of its GDP. The percentage increased significantly to almost 100% in 2021 as the economic crisis worsened. During the same period, Pakistan’s national debt-to-GDP ratio rose from around 60% to 87%.

On the other hand, Bangladesh’s national debt is significantly lower, amounting to around 40% of its GDP in 2021. But the United States and Japan have also had consistently high debt-to-GDP ratios.

According to the Prime Minister’s Office of Bangladesh, Bangladesh’s GDP and export volume are larger than those of Sri Lanka and Pakistan combined, and its foreign exchange reserves are more than twice as large as those of these two countries. South Asia (PMO).

Recent records from the Economic Relations Division of Bangladesh (ERD) show that from July to May of the 2021-22 financial year, aid in the form of foreign loans to Bangladesh amounted to $5.91 billion. They donated $8.41 billion, exceeding their planned donation to Bangladesh by 42.40%. This type of foreign credit assistance is rare, economists say.

Project assistance of $8.22 billion and grants totaling $188.50 million were secured against the disbursed loan. In the first 10 months of the previous fiscal year, $2.53 million in food grants and $186 million in project grants were received.

However, for the 2020-2021 fiscal year, from July to May, development partners have released $5.72 billion. As a result, in the first 10 months of the previous fiscal year, foreign credit support increased by 47%.

Donors committed $5.36 billion in loans between July 2020 and May 2021, according to ERD. It climbed to $5.91 billion over the same period of the 2021-2022 financial year by 10.20%.

The amount of interest paid has increased by 10%. However, Bangladesh has already paid $1.88 billion to development partners in principal and interest. As a result, loan principal and interest repayments increased by 10% from last year to this year, totaling $1.71 billion.

However, after the economic crisis in Pakistan and Sri Lanka, there is a lot of talk about Bangladesh’s multi-tiered external debt. In this regard, Bangladesh always accepts initiatives in terms of truth, according to Planning Minister MA Mannan, because we do not accept anything with passion.

“The country’s reserves and remittances are strong. We regularly repay international loans and interest due due to these factors. we have never failed before, nor will we in this situation. We always use foreign loans for the right reasons. We regularly pay interest and principal, which is mainly why we cannot eat on the loan, he said.

New Finance Secretary Fatima Yasmin explained that Bangladesh is recovering quickly from the effects of the Covid-19 outbreak to explain why the situation in Sri Lanka does not exist in Bangladesh. Many nations in the world have not been able to accomplish this. We recorded GDP growth of 6.94% in fiscal year 2020-21.

In the most recent fiscal year, more than 7.25% will be realized. More than 35% more was achieved through exports. More than 15% extra money is collected as taxes. The flow of private sector debt amounted to more than 12%.

“Bangladesh has exceptionally low interest rates on foreign loans,” she said. Every economic indicator shows that the economy is doing quite well right now. Bangladesh has more than twice as many reserves as Pakistan and Sri Lanka combined. Unlike Sri Lanka, Bangladesh made no mistakes. Therefore, there is no problem with international borrowings. Bangladesh will grow faster if there are foreign loans with cheap interest rates.

According to media reports, Dr. Zahid Hussain, a former World Bank Senior Economist, said that loans and interest payments are increasing as export earnings and foreign exchange reserves increase in Bangladesh with respect to foreign interests and actual payments. The influx of funds into the country is significant. Since the country’s independence, these have increased. Bangladesh borrowed money from abroad at cheap interest rates, with long grace periods before repayment. Thus, he said, the nation might have a chance to repay the loan in the future.

The results of the development projects are positive. Exports and remittances are a debt repayment tool. It is in a respectable position. Foreign exchange earnings are relatively substantial. Loan repayment performance is strong due to all of these factors. In each industry, we have undertaken a separate effort. The money was not thrown away; if that had been the case, the economy would have suffered. Our economy is currently quite strong, he continued.

Low-interest foreign loans have always contributed to Bangladesh’s development, according to Dr. Monzur Hossain, senior researcher at the Bangladesh Institute of Development Studies (BIDS). “The Russian-Ukrainian war has now completely altered the world economy after two and a half years of the Covid-19 pandemic, according to media reports. Bangladesh’s economy is still in relatively excellent shape even then. This debt maintains the trajectory upside of our economy, he said.

He noted that Bangladesh’s economy is in excellent shape, presenting a favorable image of the nation to the rest of the world.

However, Bangladesh has pledged $127 billion in total foreign debt since independence. According to ERD sources, of this amount, $72 billion has been disbursed, while the pipeline has $50 billion (excluding standalone).

Various development projects have received loans and grants from development partners. Since Bangladesh’s independence, the World Bank has disbursed a total of $23 billion to that country.

The AfDB has since issued $18 billion, while Japan has contributed $16 billion. China issued $4.38 billion at that time. At the same time, the European Union contributed $4 billion, the United States $3.5 billion, Russia $3 billion, Canada and Germany both contributed $2 billion, l UNICEF received $1.5 billion, India received $1.47 billion, the Netherlands contributed $1 billion, Denmark contributed $1 billion. , Saudi Arabia contributed $1 billion and Sweden $1 billion.

Bangladesh has managed to timely repay principal and interest to development partners on these loans. As a result, Bangladesh constantly owes money to development partners.

There are now 498 million people who are able to pay international interest, up from 7.5 million previously. In contrast, Bangladesh’s war-torn fiscal years of 1971–1972 and 1972–1973 saw no repayment of foreign loans and principal.

Since 1973-1974, Bangladesh has regularly repaid its foreign debt, including interest. Bangladesh barely paid $6.5 million in foreign interest in the first fiscal year (1973-1974).

The ability to pay foreign interest has soared to $498.18 million so far. According to economists, the economy of Bangladesh is constantly expanding and the ability of this country to pay interest is also increasing.

They claimed that the economy of Bangladesh is currently in a very good position and hence the payment of foreign interest has increased significantly. Bangladesh has already taken precautionary measures to avoid defaulting. Bangladesh has adopted a “cost minimization” policy so as not to face a crisis similar to that of Sri Lanka.

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