Bangladesh’s external debt to export ratio highest among 5 Asian countries

The external debt to export ratio of Bangladesh is the highest among five countries in South and Southeast Asia, found researchers in a recent study.

According to the study, the external debt to export ratio of Bangladesh is 125, while in Vietnam it is 25, Maldives 90, Bhutan 18, and Nepal 30.

That means Bangladesh might face the biggest pressure among these five countries to repay its foreign debts, said researchers.

The external debt to export ratio prescribed by the International Monetary Fund (IMF) is 240.

Although Bangladesh's external debt to exports ratio is less than the threshold prescribed by the IMF, Bangladesh needs to focus on strengthening its export performance, said experts in the research paper presented at "Annual Banking Conference 2022," organised by Bangladesh Institute of Bank Management (BIBM) Saturday.

The external debt to exports ratio is defined as the ratio of total outstanding foreign debt at the end of the year to the economy's exports of goods and services for any one year. It is used for determining what a particular country's debt load is.

"As compared to selected countries, the Lowest Present Value of external debt to GDP ratio indicates that Bangladesh has more space of foreign borrowing in case of emergency," said the researchers.

According to the study, Bangladesh's external debt to GDP ratio was maintained at around 20% from FY11 to FY21, though there was an upward tendency in recent years since FY18.

Public and publicly guaranteed external debt was 17.6% in FY11 which came down to 16.1% in FY21. On the other hand, the private external debt ratio increased from 1.2% in FY11 to 5.3% in FY21.

Researchers said long term external debt followed an uptrend, increasing from $24,480 million in the second quarter of FY12 to $66,666 million in the same time of FY21, which is an 8.3% growth per year on an average.

On the other hand, short term external debt also followed an uptrend with some fluctuations, increasing from $1,651 million in the second quarter of FY12 to $14,186 million in the same period of FY21. Here, the long-term debt held 82% share at the end of the second quarter of FY21.

The country's external loan against power, gas and petroleum grew significantly at more than 70% in the last two years. The construction sector also received significant external loans during that period.

Dr Md Salim Al Mamun, additional director of the Bangladesh Bank's Chief Economist's Unit, Dr Md Ezazul Islam, its executive director, and Mohammad Anisur Rahman, additional director of Forex Reserve and Treasury Management Department, jointly conducted the research titled "Analysis of External Debt Sustainability of Bangladesh against Stressed Macroeconomic Scenarios".

Dr Md Ezazul Islam told TBS, "Since the external debt to GDP ratio of Bangladesh is low, the government can increase the debt from abroad if it wants.

"We estimated the present values of future debt burdens and forecasted the ratios related to external debt until FY30 and found that present value of public and publicly guaranteed external debt to GDP, export to GDP, external debt service to GDP, and external debt service to revenue are much below the indicative thresholds prescribed by the IMF in the period of stressed macroeconomic scenarios.

"According to the research findings, the external debt is sustainable over the period ahead and all the external debt ratios will decrease over time during the forecasted period until 2025,"