Applying for moratorium on foreign debt repayment not in the offing

Like the rest of the world, Bangladesh is confronted with an economic crisis due to the Covid-19 pandemic. However, it is not yet thinking of applying for a moratorium on a repayment of foreign loans.  

The situation is not so bad yet, according to an official of the Economic Relations Division (ERD) of the finance ministry.

"We are still able to repay foreign loans. Moreover, it is a question of the image of the country. At the moment, Bangladesh will not apply to any development partner for a moratorium on debt repayment."

Before the Covid-19 pandemic, the only economic indicator that Bangladesh was doing well in was remittances. Export earnings and revenue collection were poor.

Beginning in March, Bangladesh's economy went from bad to worse due to the coronavirus-induced shutdown. Industrial manufacturing and other economic activities were largely affected. Export earnings saw a steep 83 percent year-on-year fall in April. Revenue collection for the current fiscal year may stand at Tk2.20 lakh crore, posting a staggering shortfall of Tk15,000 crore.

The government has announced various stimulus packages aimed at reviving the economy, including for people who have slipped below the poverty line as a result of the pandemic. After two months, the government lifted the shutdown amid a steady rise in cases of infections. But it is yet to be clear when the country's economic condition will return to normal.   

As ERD Additional Secretary Dr Pear Mohammad put it, the government may apply to bilateral and multilateral development partners in future if the economy remains in a bad state. "Again, if development partners give Bangladesh this kind of opportunity, the government may take it."

"Bangladesh recently did not accept a G-20 countries' proposal for a moratorium on debt repayment from May 2020 to December 2020.  We saw that there was no chance of benefiting from the proposal. Moreover, the interest has to be paid later. It is also a question of our national image," he added.

The World Bank recently announced that Bangladesh and other low-income countries that had taken bilateral loans from G-20 countries could apply for a moratorium on debt repayment at a time of a global economic crisis.

If Bangladesh took this opportunity from bilateral sources like Japan, China, Russia, India, the United Kingdom, France and Germany, it could have saved $300-350 million for eight months from May to December this year. But the condition was that during the moratorium period, Bangladesh would not be able to apply for any kind of concessional loan from these countries.    

In the opinion of Dr Zahid Hussain, former lead economist of the World Bank's Dhaka office, "Bangladesh has already declined to apply for a moratorium on debt repayment and that was an unrealistic decision. Credit ratings would not have gone bad if the government had taken advantage of this opportunity."

"There was no question of the country's image going bad either. This is because we did not apply for it. The offer came from the country's development partners."

According to the ERD, inclusive of the current fiscal year and the next two, Bangladesh will have to pay $6,050 million to its development partners in principal and interest. The projections were made before the pandemic. 

In fiscal year 2019-20, the government will be paying $1,850 million. Of the amount, interest will be to the tune of $570 million, while principal will amount to $1,280 million.   

In 2020-21, the government's projection is to pay $2,000 million to the development partners in principal and interest. Interest will be $600 million while principal will be $1,400 million.

In 2021-22, the government will have to pay $2,200 million – $700 million in interest and $1,500 in principal.

According to the ERD, of the foreign aid disbursed in fiscal year 2018-19, $3,404.42 million came from multilateral sources like the World Bank and the Asian Development Bank, and $2,806.35 million from bilateral sources such as Japan, France and Germany.

In that year, among the multilateral sources, the World Bank disbursed the highest amount of foreign aid, which was $1,970.17 million. Among bilateral sources, the highest amount, $1,195.66 million, was disbursed by Japan.