Government taking new loans a matter of concern: CPD

 
Bangladesh Bank should quickly spell out how it will operationalize its "crawling peg" modality as delays may incentivize keeping foreign currency abroad, Mustafizur Rahman, Distinguished Fellow, Centre for Policy Dialogue (CPD), said yesterday (4 April).

Speaking at a dialogue on "Bangladesh's External Public Borrowings and Debt Servicing Capacity: Are There Reasons for Concern?" organized by the CPD and The Asia Foundation (TAF), he said, "If we calculate our debt servicing record, external debt to GDP, we are quite comfortable.

"However, external borrowing and debt servicing liability are increasing in recent years, which is a cause of concern for us." Pointing out that the government had approached the International Monetary Fund for a loan of $4.7 billion, he said it indicated that "we are now concerned with external borrowing".

"External debt is not only a concern for Bangladesh. Emerging debt is a global issue," he said.

He said external debt now has two dimensions - external and internal.

The external factors include global economic and financial shocks, adverse impact of the Covid 19 pandemic, negative fallouts of Russia-Ukraine war, depressed global demand for goods and services.

The internal factors are weak management of external debt and borrowings, borrowings that did not generate expected returns with consequent impact on debt servicing, unsustainable borrowings, low domestic resource mobilization, currency fluctuation, unfavourable terms of and conditionalities of lending, changed composition of borrowings and high exposure to sovereign bond market, borrowings at flexible interest rate and financial market fluctuations.

'Bangladesh should explore new source of funding' Speaking about Bangladesh's changing borrowing scenario, the economist said over the recent past, significant changes are taking place in both debt portfolio and terms of loan.

 The changes include a shift from concessional to non-concessional, commercial term loans; shift from predominantly multilateral to bilateral loan; notable shift towards suppliers' credit, growing share of flexible interest rate loan (LIBOR/SOFR plus) and shift to more stringent term loans: shorter grace period and maturity period.

"We must be careful about how external borrowings for budget support are spent. Transparency and accountability in its use ought to be ensured," he said.

"Bangladesh should explore new sources of funding. Whether to go for fixed or flexible term loans must be carefully weighed," he added.

Besides, loans with single source procurement conditionalities should be carefully scrutinized to assess their implications and good value for money.
Borrowings for purposes of mitigating environmental damage must be carefully managed by taking advantage of the fund, he also said.

Dr Mashiur Rahman, economic advisor to the prime minister, was the chief guest at the program chaired by CPD Executive Director Dr Fahmida Khatun.

Salehuddin Ahmed, former governor of Bangladesh Bank and Kamran T Rahman, president of MCCI, were panelists.