Bangladesh has become a de facto defaulter: Debapriya

Distinguished fellow of the Centre for Policy Dialogue (CPD) Debapriya Bhattacharya said the rapid increase in foreign debt over the last three years has led to the deterioration of the country’s situation, which once boasted, “We have never defaulted on any loan”.

The government is currently unable to repay at least $6 billion in outstanding payments of purchases. If a country cannot pay the price for its goods, there is no economic difference between this defaulter and one who cannot pay loan instalments. Bangladesh has become a de facto defaulter at this point.

He made these remarks during a session titled “Public Debt, Domestic and Foreign: How Much is Too Much?” at the Annual BIDS Conference on Development (ABCD) 2024 organised by the Bangladesh Institute of Development Studies at a hotel in Gulshan, Dhaka on Monday (9 December).

Debapriya Bhattacharya moderated the event, while Syed Moinul Ahsan, professor emeritus of the Department of Economics at Concordia University, Canada, was present at the session.

He said that one of the major problems that the White Paper Committee found in the country’s economy is the government’s debt burden, and the committee tried to analyse the causes of the high borrowing.

“Our minds were clouded by a misleading indicator, the debt-to-GDP ratio. There could be no greater confusion than this. This was done to make the need for foreign loans seem acceptable to match the development pattern that was created,” he said.

He urged that those who had tempted the government into taking on additional debt should be punished, saying, “We are very good at paying off foreign debt.” They must be held accountable for leading the government astray.

He also found foreign development agencies responsible, and said, “What were the foreign agencies with two-letter or three-letter names observing? How did they acknowledge all this information? Or were they also partners in this development narrative?”

He said that the government is unable to pay a single taka for the implementation of the Annual Development Programme (ADP) after meeting the operating expenses from the amount of revenue it collects.

There is no such thing as a revenue surplus; on the contrary, it has to take loans which are increasing cyclically and creating a liquidity crisis in the banking sector, he added.

Syed Moinul Ahsan said that the debt-to-GDP ratio is an elusive indicator for public sector debt stock, and repayment capacity should be considered before borrowing.

He stressed the need for the government to increase revenue mobilisation at a rate faster than the annual GDP growth.