Conditional foreign loans, debt and development of Bangladesh

Immediately after independence, Bangladesh had to accept foreign aid and loans to rebuild and rehabilitate its war-torn economy, develop its infrastructure, make the key sectors of the economy self-sufficient, and implement various reform programs. 

While accepting this assistance - was, is, and will be necessary - it is important to carefully consider and scrutinise the terms and conditions that come with it. It should be based on the needs and benefits to each sector; and action plans should be formulated and implemented with the goal of achieving quick returns through efficient use.

The growing burden of foreign loan interest instalments and principal repayment after the grace period is now one of the major expenditure items in Bangladesh's revenue budget. The amount of foreign debt repayment is gradually increasing. The hard-term and supplier credit loans that are currently being taken out will further increase the debt repayment burden in the future. 

If our foreign exchange earnings do not increase, the tolerable level of foreign debt repayment may, at some point, become intolerable.

This is not supposed to be the case for most aid-recipient countries; especially if foreign aid is received at the time of need, spent, and used quickly in appropriate sectors. The point of loans or aid is to make one's limited resources more efficient, in order to meet the budget deficit. 

If the aid and loans received do not lead to the achievement of their desired goals, namely a self-sufficient and productive state, then at one point there will be a need to repay the loan money with interest, which will lead to an "Oh, Lord, save me" situation, as has happened in several developing countries and economies near and far.

In recent times, there have been unfortunate examples of several economies plagued by group, familial, and autocratic corruption, that have almost made those economies bankrupt. 

However, it is a relief that the emerging industrialised countries, known as the rising tigers of Southeast Asia, have not fallen into such a state. It has become imperative for Bangladesh to analyse the reasons for their success and failure, especially given our own dependence on aid to finance our unprecedented infrastructural development.

While $57 billion in foreign aid came in the 40 years from 1972 to 2012, more than $45 billion has been used in just the last ten years, of which 96% has come from loans and bilateral sources. 

The interest rates and repayment periods of loans from multilateral sources are generally quite bearable (soft), while loans from bilateral sources (except Japan) are at high-interest rates with limited repayment periods, i.e., hard terms. These are primarily of a supplier's credit nature.

No country can indefinitely rely on foreign aid and assistance. It is better to receive foreign aid and assistance for a limited time and make oneself self-sufficient, because there is no possibility of getting aid in the same amount, on the same terms, and from the same sources, all the time. The amount of aid and assistance available also varies depending on changes in the global economic and political environment.

Until the early 1990s, the world was divided into two camps. There were then about a dozen foreign aid candidate countries, like Bangladesh. Both camps wanted to keep these developing countries in their sphere of influence by helping them. As a result, there was not much need to struggle to get aid and cooperation. 

Loans were available, they were on easy terms, and even bilateral loans were forgiven. There were not many conditions or precautions attached to loans from multilateral organisations.

Since the end of the Cold War in the 1990s, the world is now led by one camp, and the number of aid-seeking countries has also increased. There is no longer any logical reason for these aid-providing countries to curry extra favours. Bilateral loan assistance has fluctuated in some cases, and even multilateral loan availability is becoming difficult.

Conditions for loan approval are increasing, and so are precautions. In order to be recognised as a developing country, Bangladesh will not get soft loans. For Bangladesh, a developing country, acquiring and repaying hard loans is a major challenge for the present and the future.

A developing country has to look at which sector, how much aid, why, and for how long it will take. And progress has to be ensured quickly. 

By June 2021, 24.28% of the total project loans received by Bangladesh had been used in the energy and power sector and 21.78% in the transport and communication (including roads, bridges, railways, and T&T) sector. Only 12.47% has been used in the agriculture and water resources sector, which is the lifeblood of the Bangladesh economy. The total amount used in the social sectors, such as health, education, and rural development institutions, is 15.77%.

So it needs to be seen whether the huge amount of loan money invested in the energy, power, and communication sectors has enabled desired and sustainable development. This review is necessary to make development meaningful.

There is a tendency to exaggerate and promote the economic success of some countries whose development has come about through loans. These loans come with donor prescriptions, including the appointment of foreign consultants (which cost foreign currency) in project management. 

Since the burden of loans and grants taken by any authority will have to be borne by all the citizens for up to three generations, there should be a system of increasing public awareness and public opinion verification, through discussion and debate programmes in the media and even in the national parliament on how long, why, for what work, and under what conditions foreign aid is being taken, whether it should or should not be taken.

In a democracy, people are the most important thing. Economic development is dedicated to the welfare of these people. It is through a sense of responsibility towards these people, and again through the proper performance of duties by all people, that society gains prosperity. On the other hand, irresponsibility of certain people causes great harm to society.

There is a limit to the growth of a person, an economy and a society, according to their situation and ability. If this limit is exceeded, the balance is destroyed. It is similar to a fast-moving vehicle exceeding the speed limit to a point its engine breaks down or it crashes.  A society or economy can also face a similar predicament. 

Dr Muhammad Abdul Mazid is a former secretary to the government of Bangladesh and former chairman of NBR.