A false narrative of development was created during the previous regime by using an elusive indicator of the debt-to-gross domestic product (GDP) ratio without considering repayment capacity, economists told a programme Monday.
They said debt stocks had been presented below the threshold deliberately to rationalise the huge amount of foreign loans as part of the false development narrative.
The speakers said these at the event titled "Public debt, domestic and foreign: how much is too much?" at the Annual BIDS Conference on Development 2024 in a Dhaka hotel.
They said managing the public debt system had become a major concern, suggesting punishments be ensured for those involved in the irregularities.
Syed M Ahsan, professor emeritus of economics at Concordia University in Canada, delivered the public lecture moderated by Dr Debapriya Bhattacharya, a distinguished fellow at the Centre for Policy Dialogue (CPD).
He said the debt-to-GDP ratio is an elusive indicator for the public sector debt stock and repayment capacity should be considered prior to borrowing.
The professor said this ratio reached 129 per cent in Canada in 2020 due to the Covid-19 impacts from 97 per cent in 2019. However, it declined to 102 per cent in 2022.
Ahsan said the UK's debt-to-GDP ratio increased to 238 per cent in 1947 and came down to only 43 per cent in 1980.
Managing Bangladesh's debt servicing cost for a debt stock of around 40 per cent of GDP remains challenging due to lower revenue mobilisation by the public sector, he noted, urging the government to increase revenue mobilisation faster than the GDP growth.
Speaking at the event, Bhattacharya said one of the major problems the white paper committee found is the government's debt burden.
"The committee tried to analyse the causes of high borrowing. Our minds were protected by a false indicator of the debt-to-GDP ratio, and there could be no greater confusion than this," he said, adding this was done to make the need for foreign loans acceptable in order to match the development pattern.
The economist urged the authorities to punish those who had tempted the previous government to take on additional debt by saying the country was very good at paying off foreign loans. "They must be punished for leading the government astray."
Bhattacharya also found foreign development agencies responsible and said, "What were the foreign agencies with two-letter or three-letter names looking at? How did they acknowledge all this information? Or were they also partners in this development narrative?"
He said the government is not able to spend a single taka for implementing the annual development programme after meeting the operating expenses from the revenue it is collecting.
"There is no such thing as a revenue surplus. On the contrary, the government has to take loans, which is increasing cyclically and creating a liquidity crisis in the banking sector."
The CPD distinguished fellow further said the rapid increase in foreign debt in the last three years had led to the deterioration of the situation in the country, which used to boast that it had never defaulted on any loan. He said the government is currently unable to clear at least $6 billion of purchase payments.
"If a country cannot pay for its goods, there is no economic difference between it and a defaulter who cannot pay instalments. Bangladesh has become a de facto defaulter at this point."
Dr Mustafizur Rahman, another distinguished CPD fellow, said foreign exchange reserves should be taken into account while considering the debt repayment capacity.
Bangladesh repaid $2.3 billion of debts from $48 billion in reserves two years ago, but now it is paying off over $4 billion from only $20 billion, he said. He also said after graduating from a low income country to a lower middle income one, Bangladesh is not exclusively eligible for International Development Association loans that come with a 0.7 per cent service charge, a 38-year maturity period, and a 10-year grace period. Now the country has to take both concessional and non-concessional loans, Mustafizur said. "The weighted average interest rate on foreign loans reached around 2 per cent. Several costs, including signing money, commitment charges, and front-end fees, are also included."
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