The interim government is beset with problems. Every sector and people belonging to various economic and social groups want a solution now. Of the many issues at hand ranging from polythene ban to law-and-order situation, one issue simply cannot be put off and that is foreign debt servicing. Regular repayment of foreign loans plus interest is the biggest headache. Indeed, the government of the day is grappling with massive repayments in hard currency that has shot up dramatically since the last fiscal year. As per published data, the country has "paid back foreign debt of $3.36 billion (interest plus principal) in FY24". The heavy burden of debt is one of the things the current government inherited from the previous one and it has serviced more than $0.50 billion in the last two months. Official data put that amount at $589.22 million and this constant repayment is playing havoc with the country's precarious finances.
Bangladesh has until recently been able to service foreign debt. But things have changed over the last five years that saw global recession thanks to Covid-19, a seemingly endless war in Europe and the recent violence in the country that ousted a 15-year old government from power. The fact remains that the country is having to pay out more on non-concessional loans than what it is receiving from development partners in financial aid in the form of soft loans and grants. This is something that Bangladeshi economists had been warning against for years when the previous policymakers embarked on a loan-spree from international financiers that were both short-term in nature and carried high interest rates. Given Bangladesh's abysmal track record of slow pace of implementing mega projects, repayments on these loans often started just as projects were being completed. The net result of course is that the economy could bear none of the fruits of these projects and the nation ended up having to pay out of its coffers.
Moving on to the current situation, the Economics Relations Division (ERD) has furnished data that corroborate some of the arguments placed here. While the country paid back $589.22 million during July-August period of the current fiscal, it received $458.24 million (over the same period) credit from multilateral agencies like the World Bank, Asian Development Bank and JICA. In contrast, the situation was much more favourable over the same period in the last fiscal when the government had to repay $400.50 million in foreign debt servicing against a receipt of $739.07 million in foreign aid.
Obviously, things cannot go on like this. The deteriorating law-and-order situation in the industrial belts have left scores injured, at least one dead as of September 30 and dozens of factories vandalised. Such incidents do not inspire much confidence domestically or internationally that Bangladesh is a safe country to invest in. The present government hit the ground running and there was no honeymoon period. Since the interim government has taken the reins of governance, it is expected to deliver on some basic issues like a stable law-and-order situation, without which industry is going to fumble. If the apparel industry fumbles, it bodes ill for the economy because that sector alone contributes to 85 per cent of export earnings. The other Achilles heel remains the inability of the bureaucracy to disburse and execute foreign-aided projects on schedule, a prerequisite for receiving disbursement of tranches. Unless policymakers prioritise these two areas, the economy will head for the red zone. Take action now while there is time.
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