Why Bangladesh is unlikely to face a debt crisis like Sri Lanka

Bangladesh has already taken cautionary measures to not be a loan defaulter to avoid a Sri Lanka like situation, writes Sufian Siddique for South Asia Monitor

Sufian Siddique Jul 20, 2022
Bangladesh economy

Since independence in 1971, Bangladesh has successfully repaid its foreign debts. It has pursued careful management of external debt, which has a significantly higher proportion of soft loans with longer maturity terms.

According to specialists, Bangladesh’s debt-to-GDP ratio is still below the safe level of 13 percent, as opposed to Sri Lanka's close to 50 percent. Its 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 percent of its GDP. This shot up dramatically to almost 100 percent in 2021 as the economic crisis worsened. During the same period, Pakistan's national debt-to-GDP ratio grew from roughly 60 to 87 percent.

On the other hand, Bangladesh's national debt is substantially lower, standing at roughly 40 percent of its GDP in 2021.  

Better economy 

According to the Bangladesh Prime Minister's Office, Bangladesh's GDP and export volume are larger than those of Sri Lanka and Pakistan combined. Its foreign currency reserves are more than twice as large as those of these two.

Records from the Bangladesh Economic Relations Division (ERD) show that from July to May of 2021–22, foreign loan assistance to Bangladesh totaled $5.91 billion.  

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 fiscal 2020–21, from July to May, development partners released $5.72 billion. As a result, in the first 10 months of the previous fiscal, foreign credit assistance climbed by 47 percent. 

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 fiscal year 2021–22 by 10.20 percent.

Paying loans 

Bangladesh has already paid $1.88 billion to development partners in principal and interest. As a result, the loan's principal and interest repayment increased from the previous fiscal year to this one by 10 percent, totaling $1.71 billion.

Says Bangladesh Planning Minister M.A. Mannan: "Our reserves and remittances are strong. We consistently pay back international loans and interest due as a result of these factors. We have never failed before, and we won't in this situation either. We always use loans from abroad for the correct reasons. We are paying regular interest and principal.” 

New Finance Secretary Fatima Yasmin explained that Bangladesh was swiftly recovering from the effects of Covid-19. Many countries were unable to accomplish that. We had 6.94 percent GDP growth in the 2020–21 fiscal. This may rise to more than 7.25 percent. The private sector's debt flow has risen to more than 12 percent.

In contrast to Sri Lanka, Bangladesh has not made any errors, officials say. So, there is no issue with international borrowing.  

Won’t be Sri Lanka 

According to Dr. Zahid Hussain, a former World Bank economist, loans and interest payments are rising as export revenues and foreign exchange reserves rise in Bangladesh. Remittances into Bangladesh are strong. Bangladesh borrowed money from abroad at cheap interest, with lengthy grace periods. The performance of loan repayment is strong due to all these factors.  

Low-rate foreign loans have always aided Bangladesh's development, according to Dr. Monzur Hossain, Senior Research Fellow at the Bangladesh Institute of Development Studies (BIDS). "The Russia-Ukraine war has now completely altered the global economy. Bangladesh's economy is still in relatively excellent shape.” 

However, Bangladesh has pledged $127 billion in foreign debt since its independence. According to ERD sources, of this, $72 billion has been disbursed. Various development projects have received loans and grants from development partners.  

Since Bangladesh's independence, the World Bank has disbursed $23 billion to Dhaka, ADB has issued $18 billion, Japan $16 billion and China $4.38 billion. Other countries have also contributed. 

According to economists, Bangladesh's economy is expanding and its capacity to pay interest is also rising. Bangladesh has already taken cautionary measures to not be a loan defaulter to avoid a Sri Lanka-like situation.  Thanks 

(The author, a graduate in International Relations from Bangladesh, is a development worker and commentator on South Asian politics at a research -based university students’ platform. Views are personal. He can be contacted at sufiansiddique1971@gmail.com) 

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