Amidst the dollar crisis, interest payments on foreign debt exceeded $1 billion for the first time. In the 9 months of the current financial year (July-March), 105 million dollars have been spent on foreign debt interest, which is 94 percent of the allocation for foreign debt interest payments in the national budget. In domestic currency (one dollar is equal to 110 taka), the amount is more than 11.5 thousand crore taka. That is more than double compared to the same period of the previous year. Bangladesh paid $480 million in interest during the same period last fiscal year. This picture emerged in the latest report prepared by the government’s Economic Relations Department (ERD) on the updated situation of the country’s external debt.
According to the ERD report, Bangladesh paid $105.4 million to development partners in July-March fiscal year only as interest. During the same period last financial year, interest payments to development partners were $48.59 million. As a result, the interest payment increased by 117 percent. A total of over $257 million in interest and principal payments have been made in the last 9 months. Last year at the same time it was 1.73 billion dollars.
According to ERD’s projections, Bangladesh’s foreign debt repayments, including principal and interest, will increase to $3.56 billion in the current fiscal year.
ERD officials said interest rates have risen due to the Russia-Ukraine war and the appreciation of the dollar.
The Secured Overnight Financing Rate (SOFOR) has risen amid the Ukraine-Russia war situation. Presently the Sofar interest rate is over 5 percent, which was less than 1 percent before this war. On the other hand, the market-based credit of Bangladesh is continuously increasing. Because of this, Bangladesh now has to pay more money in terms of interest.
About 75 percent of Bangladesh’s loans from the Asian Development Bank (ADB) are market-based loans. Apart from this, it borrows from the Asian Infrastructure Investment Bank (AIIB) at market-based interest rates. Bangladesh also takes market-based loans on a small scale from the World Bank.
Analysts believe that during the dollar crisis, additional pressure is being created on the reserve and budget due to the extra money spent to pay off the foreign debt.
Those concerned say that due to the short-term debt of China and Russia, the debt repayment pressure is increasing. Already the loan repayment of Rooppur nuclear power plant construction project has started. The loan repayment installments of the Metrorail project have also started. Apart from this, the debt repayment of the Karnaphuli tunnel project will also start soon. The pressure will increase when the debt repayment of another mega project starts in the next two-three years. On the other hand, loan concessions have not increased much compared to earlier. According to ERD sources, a total of $5.63 billion was received during July-March. In the same period of the last financial year, its amount was 536 million dollars.
Executive Director of the Institute for Inclusive Finance and Development. Mustafa K Mujeri said, our foreign debt is increasing. But the amount of cheap credit is decreasing. Market-based loans and bilateral loans are also increasing. The interest rate of these loans is high and the repayment period is also short. Again, due to the end of the grace period of loans taken for many of our mega projects, the actual repayment pressure has also increased, and this pressure will continue to increase in the future. In this situation, we have to be careful in paying the debt to our development partners. Although we have not yet defaulted on debt, we still need to pick up good projects as well as increase export earnings and expatriate earnings.
Meanwhile, according to ERD data, Bangladesh has received commitments of $7.24 billion from development partners in the first nine months of the current fiscal year, which is 43 percent more than the same period last fiscal year. ERD officials said that the target is to collect pledges of $10.194 billion from various development agencies in the current financial year.
According to ERD data, the largest number of commitments received in the first nine months of the current fiscal year came from ADB. A commitment of $2.62 billion has been received from this organization. In addition, commitments of $2.03 billion from Japan and $1.41 billion from the World Bank have been received.
Meanwhile, in the first 9 months of the current fiscal year, foreign currency concessions have reached 5.63 billion dollars. In the same period of the previous financial year, the amount of money exemption was 5.36 billion dollars. ADB disbursed the largest amount during this period. The company has written off $1.40 billion. Japan contributed $1.358 billion, World Bank contributed $967 million, Russia contributed $807.50 million and China contributed $361.71 million.
According to ERD sources, a total of 11,601 crores of interest has to be paid in the period of July-March of the current financial year. For the current fiscal year, the budget has allocated Tk 12,376 crore for the payment of interest on foreign loans. Accordingly, 94 percent of the money allocated to this sector has been spent in 9 months.
However, the interest and principal of the loan are not paid in local currency to the lending institution and the country. This amount is paid in US dollars or other foreign currency. But for the convenience of accounting in the budget, the allocation for interest is kept in local currency. However, no separate allocation is kept for principal repayment of budget loans. Due to the increase in the value of the dollar, the repayment of the loan has also increased in rupees.
