Amidst the dollar crisis, foreign debt payments pose challenges for Bangladesh

The burden of repaying foreign debt for Bangladesh increases as the current currency crisis persists.

The repayment of substantial debts of Bangladesh obtained via bilateral agreements with Russia, China, and other development partners has commenced. Consequently, the loan payback amount is rapidly rising and is expected to continue growing in the future. The government's expenditure on foreign loans and interest has increased in the last decade.

As to a recent assessment from the finance ministry, if the government refrains from acquiring any new loans, Bangladesh would be obligated to pay around double the present amount in seven years.

Several major projects, such as the Rooppur Nuclear Power Plant, Padma Bridge rail connection, and Matarbari Power Plant, are now being executed using bilateral financing. Several further projects are now being executed using funds borrowed from international sources.

Typically, the repayment period for these loans is brief. The initiation of loan repayments has intensified the total debt burden. Nevertheless, the advantages of large-scale initiatives carried out with these loans have not yet been evident.

The construction of the railway track from Dohazari, Chattogram to Cox's Bazar has incurred an expenditure of Tk 180 billion. A credit of Tk 130 billion has been obtained from China. There are just two trains that run on this route.

The Rooppur Nuclear Power Plant is not yet operational, but the payback of the loan instalments has commenced. This 2400 MW power station was financed with a loan of USD 11.38 billion obtained from Russia. The loan amount in Bangladeshi currency is Tk 1250 billion.

The repayment of international debts is escalating concurrently with the country's prolonged currency issue. The foreign currency reserve is diminishing due to the remittance not reaching the anticipated amount. The export revenues are also below the anticipated amount.

Zahid Hossain, the former chief economist of the World Bank's Dhaka office, said in an interview with Prothom Alo that the grace period for many projects, such as the Rooppur Power Plant, Metro Rail, and Karnaphuli Tunnel, is coming to an end. The deadline for commencing loan repayment is approaching. The allotted time of leniency for some projects has elapsed. Consequently, the burden of repaying foreign debts is mounting.

Zahid Hossain mentioned that due to the increase in the value of the dollar, the cost of repaying foreign debts has gone up, which is putting additional pressure on the budget. However, the revenue is not being collected in proportion to this increase.

In the absence of a rise in the supply of dollars, there will be a shortfall in the foreign transaction.

Loan payment doubles in 7 years

The finance ministry has just issued a report about the status of loan acquisition and forthcoming debt repayment. The report includes a visual representation of loan receipts and payments throughout the next years.

The report indicates that the amount of foreign loans is USD 70.76 billion. A total of USD 62 billion has been allocated towards development initiatives, representing a growth of two and a half times over 10 years.

According to the Finance Ministry's data, foreign loans are expected to keep increasing. The projected amount is set to reach USD 85.24 billion in the next fiscal year. However, the loan amount will decrease to USD 72.91 by the fiscal year 2029-30, assuming no new loans are acquired. This estimation only considers the loans currently in the pipeline. It is reported that there is a total of USD 44 billion being processed or planned.

In the fiscal year 2022-23, Bangladesh has disbursed a total of USD 2.68 billion in interest and principal payments. The finance ministry has estimated that a total of USD 3.28 billion must be paid during the current fiscal year. The sum will surpass USD 4 billion. The repayment of debts is projected to increase in the next years. The fiscal year of 2029-30 will see an increase in the amount to USD 5.15 billion. Subsequently, the repayment of the debt will diminish.

When Shariar Quader Siddique, the secretary of the Economic Relations Division (ERD), was contacted, he stated that all relevant information regarding foreign debt can be found on their website. 

Loan payments rose 49% in six months

The loan repayment for the first half of the current fiscal year 2023-24 (July-December) has seen a 49% rise. According to ERD sources, a total of USD 1.57 billion has been disbursed to development partners through interest and principal payments during the first six months of the current fiscal year. The sum reached USD 1.05 billion at the same time as the previous year.

The burden of repaying foreign debts has escalated during the last one to two years. ERD reports that a total of USD 2.68 billion was paid in interest and principal in the most recent fiscal year, compared to USD 2.01 billion in the previous fiscal year.

Large project loan payment starts

Many major projects, including the Rooppur Nuclear Power Plant, have started repaying their loans. The financing for the power plant was acquired in 2016, with a grace period of 10 years. However, the loan must be repaid within 10 years. In the past, USD 500 million was allocated to acquire land from Russia, and the current instalment is being paid. The repayment of the loan for the Rooppur Nuclear Power Plant is scheduled to begin in 2026.

After the incident in Ukraine, Western countries excluded Russian banks from using the widely-used 'Swift System'. As a result, the payment for the installation of the Rooppur Nuclear Power Plant could not be made through the system. However, the settlement money has been held in a dedicated account of the Bangladesh Bank. During the last 18 months, a total of USD 330 million has been retained, which represents loan repayments.

The repayment term for Rooppur, including the grace period, is 20 years. On the other hand, Bangladesh will be given a minimum of 30 years to repay the loans obtained from JICA for the construction of Metro Rail-6. A total of USD 197.18 billion has been allocated to construct the metro line.

The repayment schedule for the Padma Bridge loan has certain distinct characteristics. The finance minister has allocated Tk 326.05 billion to the bridge authority to construct the Padma Bridge. The bridge authority is fulfilling the loan payment. China Major Bridge Engineering, a contracting business, has received a payment of Tk 120 billion in US dollars. This has exerted pressure on the dollar reserves.