Bangladesh's financial architecture is facing significant pressure as the state-backed contingent liabilities for underperforming State-Owned Enterprises (SOEs) and autonomous bodies reached Tk 400.12 billion in sovereign guarantees till the last fiscal year, officials say.
This massive debt pile, triggered by heavy overseas and domestic borrowing by core public sectors like Biman Bangladesh, Bangladesh Power Development Board (BPDB), and state-run fertiliser companies, has surfaced as a major macroeconomic threat, they add.
A series of independent reviews and global assessments warn that these liabilities are pushing public finances toward an unsustainable path.
A recent World Bank study jointly produced with the Policy Research Institute (PRI) reveals that structural inefficiencies, operational leaks, and subsidies to these SOEs cost the national exchequer nearly Tk 882 billion in a single fiscal year.
This massive drain accounts for roughly 1.7 per cent of the nation's gross domestic product (GDP), suffocating the budget available for critical sectors like education, healthcare, and social safety nets.
According to official sources, the concentrated accumulation of debt centres heavily on three capital-intensive sectors - power (BPDB and power plants), aviation (Biman Bangladesh), and agriculture (fertiliser/ Bangladesh Chemical Industries Corporation).
The energy and power sector stands as the single largest contributor to this fiscal risk with the highest amount of sovereign guarantees, bleeding the heaviest losses across the economy.
Driven by controversial contracts, independent power producer (IPP) capacities, and delays, the government has extended over Tk 416.9 billion in guarantees to back 16 massive projects, including the Patuakhali, Payra, and Rampal 1,320MW thermal plants.
Compounding the crisis, Energy Minister Iqbal Hassan Mahmood recently said in parliament that the state was legally bound by these sovereign guarantees, meaning the complex contracts could not be easily modified or cancelled, tying the government's hands over late payment fees and capacity charges.
The national flag carrier represents the second-highest consumer of government-backed security, officials say.
Biman Bangladesh Airlines has accumulated Tk 109.09 billion across 15 aircraft acquisition and engine procurement projects.
Despite massive state backing, the airline remains classified under "high to very high risk" due to operational mismanagement and poor revenue returns, officials say.
To insulate local farmers from international price volatility and ensure a steady domestic food supply, Bangladesh Chemical Industries Corporation (BCIC) and various state-run fertiliser entities secured Tk 64.38 billion in state-guaranteed loans, they say.
Operating on high-cost imports combined with heavily subsidised retail distribution, these corporations have been fundamentally unable to generate the independent revenues needed to clear their commercial liabilities. The Finance Division's latest audit outlines a bleak picture of the institutional stability of public assets.
Over 81 per cent of Bangladesh's SOEs are currently operating under moderate to very high levels of financial risk, the report says.
The World Bank performance index ranks Bangladesh's public enterprises significantly lower than its regional neighbours.
While state-backed entities in India recorded a positive 9.7 per cent return on assets (ROA) and Vietnam achieved an 11.9 per cent return, Bangladesh's non-financial SOEs crashed into the negative, posting a negative 5.2 per cent return on assets.
A Ministry of Finance official says amid a declining tax-to-GDP ratio, rising inflation, and tight foreign exchange reserves, the ministry has launched aggressive damage-control policies to rein in the long-term exposure like the Sovereign Guarantee Penalty Fees to disincentivise unchecked reliance on state cushions, while the government has introduced a 0.25 per cent upfront fee on all sovereign loan guarantees for state, autonomous, or government-controlled entities.
A senior finance ministry official says although there was no incident of sovereign loan default by the SOEs, the government plans to amend the existing guideline to streamline the process and further strengthen the debt payment capacities of the SOEs.
While the total outstanding sovereign liabilities showed a microscopic dip by late last year due to temporary bank repayments, economists warn that without deep corporate governance changes, these Tk 400-billion-plus structural safety nets remain a critical ticking clock for the national economy.
Policy Exchange Bangladesh Chairman Masrur Reaz tells The Financial Express that although sovereign guarantees by the government of developing nations are not very unusual, the fruitful utilisation of the borrowing will have to be ensured.
If the return on the loans, where the government provides guarantees, is high, only those should be considered for providing the security, he says.
He also says if the government goes for providing guarantees for the less important projects or programmes of the SOEs and autonomous bodies, the country's fiscal governance as well as the rating will be downgraded.
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