Debt Dilemma: Bangladesh Grapples with Rising External Debt
Bangladesh is facing a mounting external debt crisis with increasing debt servicing obligations and a strain on foreign exchange reserves. Find out more about the country's challenging economic situation.
The Burden of External Debt
Bangladesh finds itself in the midst of a heated discussion regarding its external debt situation. While the International Monetary Fund (IMF) has deemed Bangladesh's external debt to be at a comfortable level, recent reports are raising concerns about the significant increase in debt servicing liabilities. The country's growing burden of foreign loans is attributed to high interest expenses, a larger proportion of non-concessional loans in the borrowing portfolio, and stricter loan conditions imposed by lenders.
- As of December 2023, Bangladesh's external debt surpassed $100 billion, with 79.2 percent belonging to the public sector and 20.8 percent to the private sector.
- The debt-to-GDP ratio has been on the rise, reaching 15.9 percent in June 2023, compared to 13.2 percent in FY2016.
The escalating debt servicing obligations also pose a threat to the country's low foreign exchange reserves, exacerbating the economic strain.
Challenges and Concerns
Several key indicators underscore the challenges posed by Bangladesh's external debt situation. The ratio of external debt to exports has doubled from 56.3 percent in FY2016 to 116.6 percent in FY2023, indicating a slower growth in exports compared to the increase in external loans. Similarly, the ratio of external debt to revenue collection has surged from 133.3 percent to 192.3 percent during the same period, highlighting the pressing need for enhanced revenue generation.
With the amount of external borrowing on the rise, Bangladesh's outstanding external debt has witnessed a significant increase, reaching $62 billion in FY2023 from $26.3 billion in FY2016. The country's repayment of foreign loans has also surged, marking a 59.3 percent increase over a decade.
Impending Challenges
As Bangladesh transitions to a lower-middle-income country, the terms and conditions for borrowings from international institutions have become less favorable. The rising proportion of non-concessional loans in the borrowing portfolio, coupled with stricter borrowing conditions, indicates a challenging scenario for the country.
Moreover, the shift from London Inter-Bank Offered Rate (LIBOR) to Secured Overnight Financing Rate (SOFR) has led to higher interest rates on foreign loans. The impending increase in debt servicing liabilities, combined with low forex reserves and a volatile exchange rate, present significant hurdles for Bangladesh in managing its external debt.
The Road Ahead
Amidst economic difficulties exacerbated by the pandemic, Bangladesh must adopt a judicious repayment strategy and implement structural reforms to alleviate the pressure of foreign debt repayment. Prudent management of overall debt situations, both domestic and external, is imperative to navigate the challenging external debt landscape.
The government must prioritize revenue generation, public expenditure efficiency, and project implementation governance to address the mounting debt burden effectively. With a strategic approach and necessary reforms, Bangladesh can chart a path towards sustainable economic growth and debt management.
Hi, Ali Rahman in the house! From Chittagong, Bangladesh, I've been on a wild ride from Banskhali Bangabandhu High School to Govt. Alaol College and beyond, landing me at National University. Now, I'm here to dish out the lowdown on national issues and global news. Stick around for a fresh take on what's shaking up our world! Connect With Me