New Delhi: Bangladesh’s public finances are in a precarious position due to huge interest payments and repayment of loan instalments that the government has to make on the country’s massive debt burden, according to an article in a Dhaka-based newspaper.
The huge outgo of funds for this debt-servicing leaves very little funds to allocate for the country’s economic development which is reflected in the rising levels of poverty, said the report in Dhaka-based The Business Standard.
The country’s economists are of the view that growing cost of interest payments is emerging as a major policy challenge that requires urgent action. The article cites economist Selim Jahan, former director of Human Development Report Office, UNDP as saying that Bangladesh may face vulnerabilities in the coming years as its external debt stock and interest obligations continue to rise, according to the report.
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Jahan points out that Bangladesh is set to lose grants and concessional loans after its LDC graduation next year, forcing it to rely more on costlier commercial borrowing with higher interest rates and shorter repayment periods.
He adds that global monetary tightening, domestic inflation and the depreciation of the taka have increased the cost of borrowing. Banks have raised interest rates, pushing government interest payments to new levels.
With the exchange rate weakening from Tk84 to over Tk123 per US dollar in four years, more local currency is now required to repay the same amount of foreign debt, further straining the budget.
Jahan is of the view that Bangladesh needs a strong reform programme to stabilise its debt-servicing outlook.
He stresses the need to raise the tax–GDP ratio through greater dependence on direct taxes and institutional reforms in tax administration The economist also emphasises export diversification, import rationalisation and measures to channel more remittances to strengthen foreign reserves and reduce reliance on foreign loans.
He recommends tighter expenditure controls, including postponing new physical infrastructure projects (except in education and health), reducing non-essential spending, and curbing discretionary costs. He also calls for prudent debt management, careful project selection and improved implementation
According to him, large and prestige-driven projects without clear economic or social returns should be halted. Jahan further points out that the next government must outline a clear strategy to ensure long-term debt sustainability