Woe Called External Debt

As farcical election doubles external debt, Govt seeks loan to support budget.

Growing budget deficit has led the govt to seek assistance from IMF and World Bank. A news report says government is about to start a negotiation, scheduled to be held from July 12, with IMF for a soft loan of $4.5 billion amid a current account deficit of $15 billion. Govt is also planning to borrow interest free $1 billion from the World Bank. If the talk ends successfully then Bangladesh will be able to get $5.5 billion to check the budget deficit¹.

This is a clear indication that macroeconomic management is having some troubles. Govt put the blame squarely on the ongoing war on Ukraine and COVID-19. But the govt takes three assistance packages (if the current negotiation becomes successful) from IMF during its tenure. Back in 2012,govt took assistance from Extended Credit Facility.In 2020, it took another assistance as part of COVID-19 assistance program. So macroeconomic management is not in good shape long before the COVID.

On one hand, govt borrowed heavily to finance its ambitious budget. On the other hand,external debt has grown rapidly since it assumed power. The external debt has doubled in the last five years. It would be interesting to take a look at the size of external debt at the time a regime takes power and at the time of its departure,starting from 1991.In 1991 when BNP assumed power, external debt was $13 billion. In 1996,when it left the power,the external debt was $15 billion.In 1996,the time when AL came to power,external debt stood at $15 billion. In 2001,the time it stepped down,the debt rose to $17 billion. Then BNP again came to power. In 2006,when BNP left the office,external debt became $20 billion. In 2009,when AL formed the govt debt stock was still $20 billion. In 2014,at the end of third term of AL,it rose to $24.3 billion. At the end of 2018, after the completion of AL's fourth term ,debt stock became $38.5 billion.And in 2022(Feb) it became $55.6 billion².Bangladesh Bank stats put the figures very high. According to Bangladesh Bank,debt stock in 2022 is $89 billion.The debt has almost doubled in the last 5 years. And the last two terms of Awami League do not fall into the category of representative regime. And what we see here is that external debt stock rises rapidly under regime that is not truly representative of most of the people. One cannot be blamed if one can make statement that non-representative regime spends unwisely and borrows heavily as it has little or no accountability.

Regimes & External Debt Stock Since 1991

Regime	Starting Year	Debt At The Start($Billion)	Ending/Current* Year	Ending/Current Debt($Billion)
BNP	1991	13	1996	15
AL	1996	15	2001	17
BNP	2001	17	2006	20
AL	2009	20	2014	24.3
AL	2014	24.3	2019	38.5
AL	2019	38.5	2022*	55.6

(Source: Bangladesh Economic Review 2019,2022)

External Debt(In Billion US Dollar)

	2015-16	2016-17	2017-18	2018-19	2019-20	2020-21
External Debt	41.17	45.81	56.01	62.63	68.59	81.57

Source:Bangladesh Bank

Many here dislike drawing comparison between Sri Lanka and Bangladesh. Swollen Forex reserve is the source of their confidence. Now this latest round of negotiation amid growing current deficit will make their argument sound hollow.The kind of economic management in Bangladesh we are seeing forewarns us that things as usual may lead us to catastrophe.

Notes And References:

1. "Bangladesh Expects $5.5 Billion From WB,IMF In Budget Support”,Saifuddin Saif and Abul Kashem,Business Standard, June 29,2022. For more read at https://www.tbsnews.net/economy/bangladesh-expects-55b-wb-imf-budget-support-449174
2. Bangladesh Economic Review 2022