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Public debt on the rise

Sustainability may emerge as a challenge, say experts

Jasim Uddin Haroon | May 04, 2019 00:00:00

The government debt went on rising in the year 2018 mainly due to an increased sale of the national savings certificates (NSCs).

The debt rose to 32.5 per cent of the gross domestic product (GDP) in December 2018, up by 2.1 percentage point from a year earlier, according to estimates of the Institute of International Finance (IIF).

The IIF is a group of 38 banks of industrialised states, formed in 1983 to address international debt crisis in the early 1980s.

According to the estimates obtained by the FE, the non-financial corporate debt rose by 2.0 percentage points to 47.3 per cent of the GDP during the period under review.

The corporate debt comprising both short and long term is now around $21 billion only from overseas sources, according to the Bangladesh Bank.

The IIF also said the debt of the financial institutions increased to 2.1 per cent of the GDP, up by 0.4 percentage point from 2017.

But it said the consumer debt or household debt dropped by 0.1 percentage point to 4.3 per cent of the GDP at the end of last December.

Economists view that the government debt rose as the sale of the savings certificates were on the rise.

The total outstanding fund in savings certificates was recorded at Tk 2.7 trillion at the end of February last as against Tk 2.2 trillion over the same period in 2018, according to the central bank.

They also said the debt would also rise significantly following mobilisation of fund for different mega infrastructure projects, including Rooppur Nuclear Power Plant.

Dr Ahsan H Mansur, an economist of international repute, told the FE that the Rooppur plant would raise the public debt significantly.

"To my mind, government debt will increase by at least 50 per cent for the country's lone nuclear power plant," he commented.

Mr Mansur, executive director of the leading local private think tank-'Policy Research Institute of Bangladesh (PRI)'-hinted that the debt sustainability will emerge as a major challenge for the government in future.

"It's high time the government took a prudent debt management plan. Otherwise, risks will abound…" he noted.

On the other hand, Dr Zahid Hussain, lead economist at the Dhaka office of the World Bank, said the country's debt servicing has also risen in recent years.

People invest in savings certificates as they are risk-free instruments which offer the highest return, he told the FE.

Mr Hussain said as Bangladesh is graduating from its least developed country status, external sources of funds are increasingly becoming expensive.

Dr Mustafa K Mujeri, executive director at the Institute for Inclusive Finance and Development (InM), said the nature of borrowing here is mostly from domestic sources.

The government targets 5.0 per cent of GDP to fund its budget and most of it comes from domestic sources-banking and non-banking sources, he cited.

"As demanded by the constitution, the government repays debt with interest," stated Dr Mujeri, who also served the country's central bank as its chief economist.

On the other hand, bankers said the 2018 calendar year was slightly tight in terms of liquidity.

Selim RF Hussain, managing director and CEO at BRAC Bank, said, "The Bangladesh Bank usually doesn't encourage consumer credit. Only a few banks do it."

"Considering all factors liquidity crunch might hit consumer loans in 2018," Mr Hussain told the FE.

The IIF said household debt figures are taken from national sources and if not available, then they are estimated using loans to other domestic sectors based on data from the International Monetary Fund (IMF).

It said corporate debt is estimated as the summation of cross-border bank loans (BIS), outstanding bonds (Bloomberg) and domestic loans (IMF, World Bank).

Financial-sector debt statistics are derived from various countries' financial accounts.

For countries that do not compile such accounts, financial-sector indebtedness is estimated as the summation of BIS and outstanding bonds (Bloomberg).

Government debt statistics are taken from the IMF, the IIF added.

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