Bangladesh External Debt Scenario

The part of a country’s debt that is collected from foreign/external parties is called that country’s external debt. Generally, the recipient country gets into debt with multilateral lending institutions, namely the World Bank, the International Monetary Fund (IMF), the Islamic Development Bank (IDB), the Asian Development Bank (ADB), the major banks trade and governments of other development partner countries.

Bangladesh’s outstanding external debt has increased over the years and repayment of principal and interest is also increasing. World Bank International Debt Statistics show that in 2012 total external debt outstanding was $28.28 billion, while principal repayment was $1.14 billion and payment interest of $0.25 billion. In 2021, the total stock of external debt stood at $78.04 billion, indicating the country’s increased reliance on external debt for its development activities. Some economists believe that the increase in external debt is holding back the country’s growth, as the repayment of loans attracts a large part of the country’s income.

Although Bangladesh’s external debt is growing, it is unable to incite tension among policy makers as it has a manageable level of foreign exchange reserves compared to external debt stocks. Dr Zahid Hussain, a former senior economist at the World Bank, told the FE that “it’s still tolerable, but it can be a burden if not used correctly”. In 2020, Bangladesh’s foreign exchange reserve to outstanding external debt was 62.5%, which was the third highest in South Asia, while Nepal remained in the lead with 140.1 % and India in second place with 97.3%.

The stock of external debt in relation to gross domestic product (GDP) in 2012 was 18%, which decreased significantly in 2020 and stood at 13.40%, which proves that the country’s external debt is still at a manageable level. But the spending of debt money should be allocated to economically viable and profitable projects so that it does not create a situation like Sri Lanka which has invested most of its debt money in less viable projects.

In 2012, the stock of external debt relative to GNI (gross national income) was 19.6%, the stock of external debt relative to exports was 101.9% and the stock of short-term external debt term was 42.5%. In 2020, the stock of external debt relative to GNI was 20%, the stock of external debt relative to exports was 173.7% and the stock of short-term debt relative to GNI was 62 .5%. Thus, we see Bangladesh’s stock of external debt relative to exports and short-term external debt increasing over the years.

External debt is received in the foreign currency indicated and should normally be paid in that currency. In 2012, the currency composition of public and publicly guaranteed debt in USD, euro, SDR, Japanese yen and other currencies was 55.10%, 0.70%, 17.30%, 9.10% and 4.80% respectively. And in 2020, it was 61.90%, 1.0%, 11.10%, 17.50% and 5.70%. Over the years, the concentration of external debt has increased in all currencies except SDRs.

The average durations of all new public and publicly guaranteed commitments or new external debts for all creditors contained a maturity of 28.1 years in 2012, 24.3 years in 2017 and 25.6 years in 2020. Thus Considering all aspects of external debt, Bangladesh must insist on efficient use of debts to avoid any kind of probability of failure in repayments.

Dr. Rabiul Hossain is an economist and central banker.
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Shirlene J. Manley