Managing Bangladesh’s External Sovereign Debt: Challenges and Strategies

Bangladesh’s outstanding external public and publicly guaranteed (PPG) debt has been a topic of discussion in recent years, with concerns rising about the country’s debt-servicing obligations and debt-carrying capacity. As of September 2023, the country’s PPG debt stood at $79 billion, equivalent to about 17 percent of its GDP. While this figure may not seem alarming when compared to economies of similar size, the recent growth trend in external debt-servicing obligations is a cause for closer attention.

In the past four years, Bangladesh’s PPG debt has increased by 60 percent, with interest payments rising by 168 percent and principal payments by 48 percent. The country’s debt-servicing payments in the current fiscal year have gone up significantly, with interest payments increasing by 117 percent and principal payments by 22 percent. This trend is expected to continue, given the low levels of foreign exchange reserves, slowed growth of export earnings, and the end of grace periods for large foreign loans for infrastructure projects.

One of the key factors driving the rising debt-servicing obligations is Bangladesh’s middle-income graduation in 2015, which has made it ineligible for highly concessional loans from international institutions. As the country transitions to a higher-cost borrowing category, the costs of borrowing have increased significantly. Additionally, project cost escalations and income generation in local currency have added to the debt repayment burden.

Looking ahead, Bangladesh must strategically manage its external borrowings, debt-servicing, and debt-carrying capacity. Exploring opportunities for additional borrowings from new sources, diversifying the loan portfolio, and carefully examining interest rates and lending terms are crucial steps. The quality of investments, completion of projects on time, and accountability in fund usage must also be priorities.

Furthermore, strengthening human resources, expertise, and analytical capacities in external debt management will be essential to navigate the challenges ahead. Periodic reports on the country’s debt status and debt service-related data should be improved for better policymaking. Overall, a strategic and cautious approach to external debt management is necessary to ensure sustainable economic growth for Bangladesh.

In conclusion, while Bangladesh’s external debt may not be alarmingly high compared to similar economies, the rising debt-servicing obligations require careful attention and strategic management. By diversifying borrowing sources, improving project implementation, and enhancing analytical capacities, Bangladesh can navigate the challenges ahead and ensure sustainable economic growth.