Govt confident of managing its foreign loan payments just fine

Many nations reeling from the global coronavirus pandemic is mulling over renegotiating their external debt obligations. But Bangladesh, which is banking on a V-shaped recovery, is not considering the option. By Rejaul Karim Byron and Md Fazlur Rahman

GOVT WON'T SEEK DEBT SERVICE FREEZE FROM G20 ECONOMIES

Bangladesh has decided not to avail the temporary debt service suspension facility extended by the Group of 20 major economies as the country is capable of meeting its current obligations despite the coronavirus pandemic hitting the economy hard.

The economy stands to lose a staggering $13.3 billion for the coronavirus outbreak, according to the Asian Development Bank, which is 4.9 per cent of Bangladesh's gross domestic product. And yet the country is confident that it can manage its debt obligations just fine.

The G20 is made up of 19 countries and the European Union. The countries are Argentina, Australia, Brazil, Canada, China, Germany, France, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the UK and the US.

On April 15, the G20 nations agreed to freeze bilateral government loan repayments for low-income countries until the end of the year as part of a plan to tackle the health and economic crises triggered by the coronavirus pandemic and prevent an emerging markets debt crunch.

The moratorium on bilateral government debt repayments will begin on May 1 and will apply to the 76 countries that are eligible to receive assistance from the World Bank's International Development Association (IDA), which works with the poorest countries, as well as all nations defined as least-developed countries (LDCs) by the United Nations.

In recent years, Bangladesh has been among one of the largest recipient countries of the IDA fund. The WB has informed all of its IDA-recipient countries about the debt freeze opportunity. But Bangladesh has officially informed both the WB and the G20 countries that it would not use the facility, said an official of the finance ministry.

The government has decided against availing the debt suspension facility as the country is set to graduate to a developing country from the LDC group.

Rapid growth enabled Bangladesh to reach the lower middle-income country status in 2015. In 2018, the country also fulfilled all three eligibility criteria for graduation from the LDC list for the first time and is on track for graduation in 2024.

If Bangladesh avails the debt freeze, it would have to cough up an additional $10 million per month over the three years, the finance ministry official said.

The G20 countries also don't lend much to the country. 

Bangladesh repaid $1.57 billion in debt payment in fiscal 2018-19, more than 80 per cent of which went to the multilateral lenders. Of the sum, $1.18 billion was in principle amount and the rest in interest.

The country would pay $310 million in debt obligations to the G20 countries this fiscal year.

Bangladesh's borrowing from the G20 countries has accelerated in recent years and is largely limited to the economies such as Japan, China and Russia. The repayment for the loans for the large creditors would begin after 25 to 30 years, the finance ministry official said.

Besides, if Bangladesh uses the debt suspension opportunity, its space to receive official development assistance from Japan would squeeze, the official said. 

The announcement from the G20 economies came after the WB urged the G20 to let the poorest countries suspend all repayments of official bilateral credit due to the adverse impact on their economies due to the coronavirus pandemic.

The actions to freeze both principal repayments and interest payments will free up more than $20 billion for the countries to spend on improving their health systems and fighting the coronavirus pandemic, Saudi Finance Minister Mohammed al-Jadaan told reporters after a virtual meeting of G20 finance officials on April 15.

The debt suspension will last until the end of the year but creditors will consider a possible extension during 2020, taking into account a report on countries' liquidity needs by the World Bank and the IMF.

The repayment period will be three years, with a one-year grace period.

As per conditions, each beneficiary country will be required to commit to using the created fiscal space to increase social, health or economic spending in response to the crisis. A monitoring system is expected to be put in place by international financial institutions.

The countries will have to disclose all public sector financial commitments (debt).

The recipient countries will not get new non-concessional debt during the suspension period, other than agreements under this initiative or in compliance with limits agreed under the IMF Debt Limit Policy (DLP) or World Bank Group policy on non-concessional borrowing.

DHAKA URGES BEIJING TO CUT INTEREST RATES ON PROJECT LOANS

Meanwhile, Dhaka has requested Beijing to cut the interest rate at which China is bankrolling projects worth billions of dollars in Bangladesh by half and speed up signing loan agreements to help the country in its quest for a V-shaped recovery from the economic fallout of the global coronavirus pandemic.

Beijing's move would give a fillip to the economy and create jobs through the implementation of the projects as soon as the effects of the deadly bug that set off from China peter out.  Dhaka has sent a letter to Beijing to this effect and the mid-level officials of the Chinese government have assured they are actively looking into the issues.

The issue came up as China usually takes long to approve a project and the pandemic has just made the situation worse.

China was supposed to sign agreements by June to provide $2.13 billion in loans for the construction of the Dhaka-Ashulia elevated expressway and strengthening the Power Grid Company of Bangladesh's (PGCB) grid network.

The two projects involve $1.15 billion and $970 million respectively.

Now, only the project involving the PGCB would be signed, said an official of the Economic Relations Division (ERD). 

Bangladesh has demanded China cut the interest rate on loans to 1 per cent from 2 per cent on the projects, citing the example of India.

The country is implementing a number of projects under the $7.5 billion three-phased line of credits from New Delhi at 1 per cent interest rates.

As the pestilence ravaged countries after countries, China has received a wave of applications for debt relief from crisis-hit countries included in the Belt and Road Initiative (BRI).

Chinese policy advisers and bankers told the Financial Times that Beijing was considering a number of responses, including the suspension of interest payments on loans from the country's financial institutions.

"We may cut interest rates by a few percentage points or have it removed. We could also reduce principal payment by a moderate amount. The idea is to keep borrowers from going under, which may undermine our interest," Mei Guanqun, a researcher at the China Centre for International Economic Exchanges, a government think-tank in Beijing, told the FT.

Officially, Bangladesh is not part of the BRI. But Beijing considers some of the projects out of the 27 that China had agreed to bankroll during its President Xi Jinping's Dhaka visit in October 2016 for about $20 billion as part of the initiative.

The projects that Beijing considers part of BRI involve $11 billion. A joint working group was earlier formed to probe slow progress of the 27 projects. And Dhaka has recently called for fast-tracking loan agreements, the last step before the release of funds.

Until November, loan agreements for six projects involving $5.71 billion were signed and $1.09 billion was disbursed. The projects are Karnaphuli river tunnel, Info-Sarkar, Single point mooring in Maheshkhali, telecom network upgrade, Padma bridge rail link and expansion of power network in Dhaka.

The BRI, which was launched in 2013 as the signature foreign policy initiative of President Xi Jinping, is aimed at building infrastructure and boosting China's influence around the world.

Most of the 138 countries that have officially signed up to the BRI are developing nations, many with the weakest credit ratings in the world.