Time to negotiate external debt rescheduling: Debapriya

Noted economist Debapriya Bhattacharya has advised the government to define a repayment strategy including rescheduling of imminent payments given the current account and foreign reserve status.

He said "very close" monitoring will be "paramount" to keep the debt situation in check.

Debapriya, distinguished fellow of the Centre for Policy Dialogue (CPD), also advocated for shelving projects that are yet to start, and reassessing some ongoing projects to save money.

"Bangladesh needs to be wary of the debt situation since it may become somewhat tricky in 2024-26 as the repayment schedule for many of the high-value loans will kick off around that time," he told an online conversation about top 20 foreign-funded mega-projects with journalists on Thursday.

The economist said the current foreign debt-to-GDP ratio is around 1.1%, which may double by 2026. "The country will no longer be in a repayment comfort zone. It is uncertain what will happen to depleting forex reserves in the future, or how the balance of payment will be."

The economist believes Bangladesh needs foreign aid from giant international lenders like the International Monetary Fund (IMF) to ease the pressure caused by weaker Taka, fuel crisis and surging inflation.

He noted that availing financial support from the IMF will help make other development partners confident about Bangladesh. "It is not a big issue whether the IMF gives us $2 billion or $4.5 billion."
 
Chinese loans to cause the highest pressure

There are 40 loan packages for the top 20 mega-projects with an estimated total of Tk556,955 crore. The projects will spend more than 61%, or around Tk340,691 crore, from foreign financing.  

Infographic: TBS

Of the 40 loan packages, 13 packages amounting to $32.26 billion will be due for repayment by 2024. At that time, the grace period for China's two high-interest loans will end.

In 2026, the debt servicing of the Russian-funded Rooppur nuclear power plant, the largest Russian-funded project in Bangladesh, will begin.

Seven Chinese and Russian semi and non-concessional loans amount to $17.78 billion. Of the 40 loan packages, Russian loans amount to 36.6%, Japanese 35% and Chinese loans 21%.

According to Debapriya Bhattacharya, Chinese loans will cause the highest pressure for the country thanks to their shorter grace periods.

He said Bangladesh in the last decade opted for a big push in public sector investment in infrastructure projects based on foreign financing. Most of the projects have been initiated in the 2014-2018 period, between two national elections.

The mega projects include the Padma Bridge, Rooppur Nuclear Power Plant, Karnaphuli Tunnel, Matarbari Coal Based Power Plant, Metro Rail and Padma Bridge Rail Link Project.

Debapriya said all the 20 mega-projects were supposed to be completed by 2028, but many project deadlines now appear to extend. Specifically, implementation of projects taken up after 2018 is disappointing.
 
Not seasonal, rather a structural issue  

Debapriya Bhattacharya said lack of quality feasibility studies, coordination failure, implementation challenges such as corruption, cost and time overrun, as well as macroeconomic weaknesses led to failure of many mega-projects causing huge economic loss in developing countries.

And all these potential threats are relevant for Bangladesh.

He said the government often does not want to listen to the country's economists. But there could be various reforms on the advice of the IMF.

"It is important to avail financial support from the IMF," he said, adding, "But the problem that is coming up is not a seasonal problem, rather it is a structural one."

His recommendations include adopting strategies to boost remittances, diversifying exports, increasing foreign direct investment and foreign aid, stabilising the value of Taka in the medium term and tackling inflation.

"But the integrated policy and leadership in the fiscal system is still absent. No steps are visible to tackle the issues."

Terming the government's responses to economic issues "just some hasty decisions", he called for coordinated fiscal, monetary and trade policies.
 
Transport tops mega-projects

Of the 20 mega projects, there are 11 projects in the transport and communication sector with an outlay of more than Tk25,165 crore.

The second highest four projects are in the power and energy sector with an estimated cost of more than Tk49,935 crore.

The education sector has two projects, with an estimated cost of around Tk24,523 crore. Health sector also has two projects, with an outlay of around Tk8,850 crore.

The housing and public works sector has one project, with an outlay of Tk11,246.30 crore.

In the development budget in FY2022-23, the above projects received more than 62% of their allocations from foreign funding.

The CPD distinguished fellow said the undertaking of the mega-projects was logical. But projects in the transport and communication sector were prioritised as they are visible and can portray the development.

There was less interest in health and education projects as they cannot demonstrate visible development within a short time, he commented.