Debt repayment pressure is increasing

Symbolic imageDollar reserves are decreasing, and the government’s foreign debt repayment pressure is increasing. For the first time this fiscal year, the government will have to repay $2 billion in real estate. This pressure will increase from next year. Almost all mega projects including Padma Rail Link Project, Tunnel, Metro Rail, Rooppur Nuclear Power Plant have been inaugurated. The grace period for many projects has ended. One will end. The real repayment pressure will come only after the grace period is over. Analysts fear that the dollar-crisis will intensify in the coming days due to the demand for dollars in all other sectors and the pressure of foreign debt repayment.

According to Economic Relations Department (ERD) sources, a 2.6 billion dollar loan agreement was signed with China in 2018 for the Padma Rail Link Project. The rail connectivity project was inaugurated recently. And the five-year grace period of the loan taken for the project also ended last April. The original repayment of this project loan should be started in this financial year. This loan is to be repaid in the next 15 years.

Another mega project of the government, Rooppur Permanaki Power Project, will also start its loan repayment from 2027. The government has taken a loan of 11.38 billion dollars for this project. The 20-year loan requires principal payments of more than $500 million each year. Around the same time, the actual repayment of the loan for the first phase of the Metrorail project will begin. Annual real repayments would then go from $4.5 billion to $5 billion. The data suggests that actual repayments will increase substantially from FY 2025-26 to FY 2026-27.

Not just project loans; In the post-Corona era, the government has taken foreign loans as a budget support due to funding crunch and lack of desired revenue generation. According to ERD data, Bangladesh has received 6.46 billion dollars in budget support from the beginning of the pandemic to the last financial year. Some of these budget assistance loans have a grace period of three years; Loan repayment period is 12 years.

In the meantime, the grace period of some such budget assistance loans has also ended. This includes budget support of $250 million from the Asian Infrastructure Investment Bank (AIIB) and $250 million from the Asian Development Bank (ADB). The grace period of these two loans ended last May. And another grace period of $250 million in budget support ends next June.

All in all, as the days go by, the pressure to repay the foreign debt in dollars is gradually increasing. Analysts believe that it will be difficult to increase the foreign exchange reserves to the desired level if the remittance flow and exports do not increase. Meanwhile, the reserves have reached 16 billion dollars. Remittance inflows have started increasing since last month as a result of increased incentives on remittances.

However, there is instability in the export sector. It is difficult to say when this instability will end. Because the workers have rejected the announced salary structure. Now the entrepreneur is closing the garment factory due to security reasons. Economists-analysts believe that if this shutdown and production is disrupted, it may have a negative impact on export growth, which will also affect export earnings.