Repay state-guaranteed loans regularly to skip defaulter tag

Fast-rising state guarantees against both foreign and local loans warrant government alert for ministries and the central bank to timely repay the debts to avert the risk of falling defaulter, officials said.
The Ministry of Finance has made the reminder decision amid an acute shortage of foreign currencies in the country which led many state-owned enterprises (SoEs) to delay foreign-loan-instalment payment.
A recent meeting of the Cash and Debt Management Committee (CDMC), chaired by finance secretary Dr Khairuzzaman Mozumder, decided to alert the ministries and the Bangladesh Bank so that payment of no instalments of foreign loans which have government guarantees misses timeline.
Until this past March, according to finance ministry data, the government guarantees against both the foreign and domestic loans had amounted to Tk 1.115 trillion, up from Tk 985.91 billion in June last year.
In June 2022 the total government-guarantee liabilities against loans were worth Tk 926.01 billion in a significant rise from Tk 738.36 billion in June 2021.
Official data show that until March this year, the government guarantees against foreign loans stood at Tk 729.30 billion while against domestic debts Tk 386 billion.
A senior Finance Division official told the FE that the CDMC meeting decided to write to the ministries about on-time repayment of the state-guaranteed loans, especially the foreign loans, without failure.
"We will also write to the central bank to arrange required foreign currencies to make the repayment on time," he said.
Meantime, the government also decided to update the Sovereign Guarantee Guidelines 2012 to mitigate contingent or accrued liability risk and to ensure sustainable government guarantees.
This was decided as government-guaranteed loans of the state enterprises have been on a continuous rise.
The move also aims to streamline the sovereign-guarantee process and further strengthen debt-servicing capacity of the SOEs.
The volume of sovereign guarantees is expected to rise in the years ahead as many SoEs plan for expansion.
Biman Bangladesh Airlines plans to buy some more aircraft very soon and so the government will also have to provide sovereign guarantee again, a finance official told the FE as an example.
According to officials concerned the government provides sovereign guarantees against loan negotiated by various state-owned financial and non-financial enterprises for implementing different public policies and programmes.
These guarantees were primarily issued to entities operating in the commercial aviation sector, power sector, fertiliser-production plants, and public commodity sector, according to a finance ministry document.
"If the contracting organisations fail to pay their loan in time, the guarantees may be invoked and the liabilities for payment are passed on to the government and this shall have future fiscal implications," a finance division document reads.
It says sovereign loan guarantees expose the government to potential financial losses if SoEs default on their debts. This can happen if the SoEs become insolvent or their projects under-perform.
Even without defaults, there are implicit risks associated with SoEs. "The government might need to inject additional capital (recapitalization) to keep these enterprises afloat."
In the Medium-term Macroeconomic Policy Statement, the finance division has suggested creation of sinking funds mandatory for the SoEs to get guarantees which means they will have to set aside resources for eventual repayment, and reducing long-term liabilities.
Also suggested is real-time monitoring of SoEs' guaranteed debts by using digital systems which will help early identification and intervention in case of potential problems.

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