Govt borrows to repay loans amid low revenue collection: CPD

Bangladesh's debt and repayment obligations are escalating, forcing the government to continually resort to borrowing to repay loans amid insufficient revenue collections, according to the Centre for Policy Dialogue (CPD).

"We are indeed borrowing to repay a large part of our public and publicly guaranteed debt obligations," said Mustafizur Rahman, a distinguished fellow of the CPD.

"Therefore, there is no alternative but to rapidly increase domestic resource mobilisation." 
He made the remarks while presenting a paper on Bangladesh's external public borrowings and debt servicing capacity at a dialogue.

The CPD, in partnership with the Asia Foundation, organised the event at the Lakeshore Hotel in Dhaka.

The independent think-tank noted that the rate of external borrowings and debt servicing obligations have increased in recent years.
Bangladesh's public and private external debt was $98.9 billion in June 2023, and it crossed the $100-billion mark in September 2023. 

Prof noted that the current external debt-to-GDP ratio of 21.6 percent is not high comparatively. 

However, he warned against complacency, emphasising that "the capacity for repayment is of critical importance."

The CPD highlighted that the composition of the debt portfolio is rapidly changing. 

The proportion of concessional loans is decreasing, while the share of non-concessional and market-based loans is increasing. Loan terms are also becoming more stringent.

Prof Rahman expressed concerns about the rapid increase in both external borrowings and debt servicing obligations, especially when compared with the growth of GDP, revenue earnings, exports, remittances, and foreign exchange reserves.

Bangladesh's revenue-GDP ratio is one of the lowest in the world.

"This, coupled with the debt-carrying capacity and debt-servicing strength raises concerns," the economist said. 

"At the end of the day, it is the domestic resource mobilisation that will need to underwrite the debt servicing for both domestic and external borrowings." 

He added that an increasing portion of domestic resources is being used to repay the principal and interest of domestic and external loans.