Foreign debt liability surges 283.42% in 15 years

The overthrown Sheikh Hasina government took on average $403 million in foreign loans per month over the last 15 years, making Bangladesh indebted by Tk4,842 crore to foreign lenders each month, which translates to over Tk161 crore per day. 

During the period, outstanding foreign debt surged by 242.56%, and repayments soared by 283.42%, both driven by increased borrowing from international sources.

When the Awami League ascended to power in 2009, the government paid $875.58 million in principal and interest, a figure that surged to $3.357 billion over the next 15 years, according to sources at the Economic Relations Division (ERD).

ERD data show that principal repayments have increased by 193% and interest payments by 609% in fiscal 2023-24.

In fiscal 2009-10, the government paid $685.74 million principal to development partners, while in the last fiscal year the amount rose to $2.009 billion. Similarly, interest payments surged from $189.84 million to $1.347 billion.

Officials say that coming to power, the Hasina government secured loans for numerous major projects. These include the Rooppur Nuclear Power Project, Metro Rail MRT-6, Padma Rail Link, Karnaphuli Tunnel, and the Third Terminal of Hazrat Shahjalal International Airport, all of which have been completed or are nearing completion. As a result, fund releases by development partners for these large-scale projects have increased.

The rise in debt liabilities is attributed to the increase in foreign loan disbursements. In addition to mega projects, the government sought budgetary support to address economic challenges made worse by the Covid pandemic and the Russia-Ukraine war. Over the past five years, the Awami League government secured $8.48 billion in budget support loans.

ERD officials say the increase in foreign debt liabilities, including development and budget support loans, has led to a gradual rise in both interest and principal repayments.

According to ERD data, the government's outstanding foreign debt rose from $20.336 billion in FY10 to $69.663 billion in the last fiscal year.

ERD officials attribute this increase to the ending of grace periods as fund release for large-scale development projects has expanded, leading to higher principal payments.

They also note that market-based loans have significantly contributed to the rise in interest payments, driven by an increase in Secured Overnight Financing Rate (SOFR).

Since last year, the SOFR rate has surged due to the Russia-Ukraine war and the appreciation of the dollar, with current rates exceeding 5% compared to less than 1% before the war.

Furthermore, as Bangladesh's reliance on market-based loans grows, the country faces higher interest payments.

According to ERD sources, the highest interest payments are currently being made on loans from the Asian Development Bank. Approximately 75% of the loans Bangladesh receives from the Manila-based lender are market-based.

Additionally, the government secures market-based loans from the Asian Infrastructure Investment Bank and, on a smaller scale, from the World Bank.

Zahid Hussain, former lead economist at the World Bank's Dhaka office, told The Business Standard, "In recent years, we have been undertaking numerous mega projects funded by foreign loans. For instance, the Rooppur Nuclear Power Project is a significant part of the government's $70 billion debt, with $12 billion attributed to this project alone."

"There are growing concerns about the project, including outdated Soviet-era technology and allegations of $5 billion in corruption. Previous reports of corruption have surfaced. Such problematic projects are likely to worsen our debt burden," he added.

Zahid Hussain emphasised that ongoing, foreign-funded projects should be evaluated from multiple perspectives.

"Just because a project has begun does not mean it must be completed," he noted. "We are obligated to repay the expenditures because the state has borrowed the money. However, this money should be recovered from those responsible for mismanagement and irregularities."

He also said, "We need to be more strategic when taking on projects funded by foreign loans. Only those projects that offer real economic benefits should be pursued. For example, the Dhaka-Chattogram 6-lane project, if properly designed, could significantly drive economic growth."

According to experts, Bangladesh has entered into agreements with development partners for loans totalling $44.69 billion over the past 15 years, with these funds to be disbursed as project implementations make progress. Concurrently, loan repayments are increasing. In the next two to three years, loan repayments are expected to reach $5-6 billion.

Experts warn that without increased revenue collection and a better supply of foreign currency, the growing debt repayment pressure could strain the economy. Additionally, there are concerns that the cost of infrastructure projects funded by foreign loans is significantly higher in Bangladesh compared to other countries.

Planning Adviser Wahiduddin Mahmud raised this issue during a meeting at the Planning Commission last Monday, highlighting the fact that cost per unit in Bangladesh is higher than in many other countries.

He noted that this problem extends to various infrastructure projects, including roads.

Engineer Shamsul Hoque pointed out that the previous government undertook numerous infrastructure projects with foreign loans, resulting in higher costs compared to other nations. For instance, he cited the metro rail project, noting that while Indonesia also built a metro rail with Japanese funding, the cost in Bangladesh is notably higher.

He added, "Many of our neighbouring countries have managed to build similar infrastructure at a lower cost. Contractors have exploited weaknesses in our administrative processes, leading to higher expenses. Consequently, where we build one infrastructure project with the loan money, other countries manage to build two similar projects with the same amount of foreign debt."

Hoque, a professor at the Bangladesh University of Engineering and Technology, suggested that the current interim government look into these issues.