Prime Minister Sheikh Hasina ordered foreign loans to be contracted against standard benchmarks such as Bangladesh’s current risk-free borrowing to avoid future problems, officials said after a review meeting on Tuesday.
She also asked the authorities concerned to implement an integrated fiscal and monetary policy aimed at controlling domestic inflation fueled by global fuel and food prices.
Amid Sri Lanka’s economic woes, the prime minister held talks with the finance minister for a review of the macroeconomic scenario, particularly Bangladesh’s external debt position, in Ganabhaban on Tuesday.
And the meeting came to the conclusion that Bangladesh would face no debt repayment problems even in a decade, senior officials present at the meeting said.
Finance Minister AHM Mustafa Kamal, Bangladesh Bank Governor Fazle Kabir, Finance Division Secretary Abdur Rouf Talukder, National Board of Revenue (NBR) Chairman Abu Hena Md. Rahmatul Muneem and Secretary of the Economic Relations Division (ERD) Fatima Yasmin were among others present at the inventory meet.
After the meeting was over, Principal Secretary Dr. Ahmed Kaikaus told a briefing that Bangladesh would not face a situation like Sri Lanka as the country has not taken any bad projects but has some. taken from the best with very probable yields.
“Since the inflation inside the country is a kind of imported inflation due to the rising food and oil process in the international market, the monetary and fiscal policy of Bangladesh will have to be managed properly,” said Prime Minister Hasina during the meeting.
“Bangladesh’s economic fundamentals are on solid foundations. The macroeconomic scenario is much better than that of Sri Lanka and Pakistan. It is shameful and painful for Bangladesh if someone compares it to Sri Lanka,” said Mr. Kaikaus.
Meanwhile, two presentations on “Offshore Tax Amnesty” and “Reviewing the Macroeconomics of Bangladesh in the Context of the Sri Lankan Economic Crisis” were delivered to the Head of Government during the meeting at her Ganabhaban’s official residence, a PMO statement said.
During the presentations made by the National Board of Revenue (NBR) and the Finance Division, the reasons behind the current economic crisis in Sri Lanka and its response were discussed in detail while examining various indicators of the economy of Bangladesh by compared to other South Asian countries.
Principal Secretary Dr. Kaikaus said that upon analysis of all the current macroeconomic data from Bangladesh, the Prime Minister expressed his satisfaction.
Drawing on the high-level reassessment of the country’s economic health, he said Bangladesh’s external debt-to-GDP ratio and loan repayments are still in a comfortable zone, export earnings, remittances and foreign exchange reserves are in a solid position.
“Bangladesh has not taken any risky foreign loans. The country has borrowed these loans to implement the projects which have had a good return. Thus, Bangladesh will also not have any problems in the coming days,” he added.
Bangladesh’s exports in the July-March period of the current fiscal year 2022 increased by 33.41% to reach US$38.60 billion compared to the same period of the previous fiscal year 2021.
Remittances in the first three quarters fell 17.74 percent to $15.30 billion from the corresponding period, according to Bangladesh Bank data.
According to the central bank, the country’s foreign exchange reserves had reached $44.20 billion as of Monday.
According to the BNR, tax revenue increased by 15.28% to 1,760 billion taka in the July-February period of the current fiscal year compared to the same period of the previous fiscal year 2021.
Mr. Kaikaus said that by analyzing various economic indicators, it has been observed that there is no risk associated with the repayment of Bangladesh’s external debt in the medium and long term. “Almost all indicators point to Bangladesh’s economy being relatively stable.”
According to the Economic Relations Division (ERD), the external debts of Bangladesh, including medium and long-term debts (MLT) and outstanding external loans of the State-owned enterprise (SoE), amounted to 60.15 billion at the end of fiscal year 2021.
Meanwhile, Bangladesh’s total debt-to-GDP (gross domestic product) ratio is 32.4%.
According to the ERD, Bangladesh can borrow 55% of its GDP from domestic and foreign sources.
The country can take 40% of the GDP equivalent of a foreign loan from outside lenders, DRE officials said, citing the standard threshold set by the International Monetary Fund (IMF).
Principal Secretary Mr Kaikaus said: “Bangladesh is currently at a comfortable level and has no problem repaying its external debt over the next decade.”
DRE Secretary Fatima Yasmin said most foreign loans borrowed by Bangladesh are concessional loans from multilateral and bilateral development partners. These loans have a low risk and a long repayment period.
However, Ms Yasmin said most of Sri Lanka’s loans were commercial loans and sovereign bonds, which have to be repaid over a shorter period or in five years at high interest rates.
“Sri Lanka’s external debt is $35 billion while Bangladesh’s is around $50 billion with an interest-to-GDP ratio much lower than the South Asian island nation,” she said.
Bangladesh needs to spend some $2.5 billion a year to pay off its debt, she added.
She said that although the interest rate on Sri Lankan loans is above 8.0%, Bangladesh’s foreign borrowing rate is around 1.4% on average with a maturity of 30 years.
“Bangladesh does not have high interest commercial loans or sovereign bonds,” the ERD secretary added.
Finance Secretary Abdur Rouf Talukder also presented a comparative analysis of economic fundamentals, saying that the four major economies in South Asia are India, Bangladesh, Sri Lanka and Pakistan. “But the size of Bangladesh’s GDP is greater than that of Pakistan and Sri Lanka combined.”
Ahmed Kaikaus said that after analyzing the country’s economic data for three hours, the prime minister was confident that Bangladesh was at no risk when it came to repaying foreign debt.
“It’s far from like Sri Lanka. She (PM) is not worried at all.
“While we are proud and rejoice in the achievements of Bangladesh during the 50 years of independence, it is ridiculous to compare Bangladesh to Sri Lanka in such a way as to undermine national achievement,” the official added.
Asked about the government’s plan to raise oil prices in the international market, Kaikaus said they have no plans at the moment to raise the price of oil on the domestic front.
In response to the topic of subsidies in the budget, Finance Secretary Mr. Talukdar said the government would not cut subsidies. “If we reduce or remove subsidies, inflationary pressure could be fueled.”