Country struggled to clear $6b foreign loans in FY24聽聽
The government is facing multiple challenges to maintain the country鈥檚 non-defaulting status in the current financial year after it had to struggle to pay $6.07 billion in overseas debts in the past financial year (2023-24).
Economists blamed wrong economic management by the Awami League government, which was ousted on August 5, 2024 amid a mass uprising, for the sharp rise in overseas debt payments in the past several financial years, including FY24.
The interim government that assumed power on August 8, 2024, has inherited the challenges like the fallout of a persistent devaluation of the local currency taka against the US dollar from the previous political regime.
Until the July-January period of FY25, the government鈥檚 debt payments rose by 33 per cent over the same period of FY24, according to the ERD update released on Thursday.
The financial year 2023-24 was the most inauspicious one as the government had to incur additional $1 billion in debt because of a sharp devaluation of the taka against the dollar, according to the Flow of External Resources into Bangladesh 2023-2024, a publication of the Economic Relations Division.
The chronic shortage of dollars caused the devaluation of the taka by about 35 per cent in the FY2022-23 and the FY 2023-24 with about 26 per cent alone in the FY 2022-23, the sharpest in 46 years.
The taka had suffered about 71 per cent devaluation in the FY 1974鈥�75.
Former World Bank Dhaka office chief economist Zahid Hussain said that the devaluation of the local currency would continue to impact the overall debts in the coming years.
The interim government needs to take a more pragmatic approach to the challenge management, he said.
The annual ERD publication released this month said that the elevated global commodity prices due to the war in Ukraine and the synchronised global monetary policy tightening were the first two challenges making the external borrowing costly.
The publication mentioned borrowing from bilateral sources on non-concessional terms as the third聽 challenge despite the fact that additional amount of budget support and project support was essential to address the finance recovery-related and regular projects.
The adverse situation deepened because of a phenomenal increase in external debts, still the government became able to conduct servicing its debts, said the publication.
In the FY 2023-24, external resources amounting to $10.74 billion were mobilised and the disbursement crossed the $10 billion mark for the third consecutive year.
However, the total amount for debt servicing jumped to $6.07 billion in the FY 2023-24 from $4.7 billion in the FY 2022-23, said the ERD publication.
Of the overall amount paid in the past financial year, $4.1 billion was paid for servicing the principal amount and the rest $1.9 billion for servicing the interest payment.
The ERD publication identified the devaluation of the taka against the dollar by about 35 per cent in the FY 2023-24 as the major factor causing the government to incur extra $1 billion in debts.
Liquidity risk, solvency risk and re-setting and interest rate risk have remained as major concerns for the government in the upcoming financial year, said the economists.
They said megaprojects implemented mostly with foreign loans by the Awami League regime had left the nation with concerns over the debt trap amid the questionable expected returns.
The views have also been expressed in the recently released 鈥榃hite paper on the state of Bangladesh economy鈥�.
M Masrur Reaz, chairman of the Policy Exchange Bangladesh, said that the interim government needed to start negotiation over debt restructuring with it main creditors.
It is good to see that the interim government has already convinced China, the country鈥檚 third biggest bilateral creditor after Japan and Russia, to increase the repayment period of loan to 30 years from 20 years, he added.
