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Bangladesh’s growing debt is stoking fears of a Sri Lankan-style crisis. But analysts see no reason to worry, for now

However, economists believe the economy is currently well positioned to weather any near-term external shocks as they have played down fears of a crippling meltdown.

Nevertheless, they called for caution while insisting on the need to use foreign funds prudently on profitable development projects in order to maintain the confidence of lenders. If a project cannot generate enough revenue to repay the loans needed to implement it, it will cause problems in Bangladesh, they warned.

Experts also called on the government to strive to control inflation to avoid any potential crisis.


After the Awami League returned to power in 2008, the government focused heavily on infrastructure development using external credit.

But the Padma Bridge project marked a certain shift in attitude as Sheikh Hasina decided to build the structure with the country’s own funds after the World Bank refused to fund it, alleging corruption. The project is currently nearing completion.

A view of the Padma Bridge taken from the river on Monday, June 14, 2021. According to information from the Bridge Division, construction work on the bridge was 93% complete as of June 1. The government hopes to allow traffic on the bridge from next year if things go as planned. Photo: Mostafigur Rahman

Donors now have a more positive attitude towards Bangladesh and are always open to government appeals for financial assistance, according to a finance ministry official.

Over the past decade, Bangladesh received an average of $4.66 billion a year, compared to $1.56 billion a year in the previous decade, according to data released by the Economic Relations Division.

Zaid Bakht, chairman of Agrani Bank and former researcher at the Bangladesh Institute of Development Studies, believes that political and economic stability has placed Bangladesh in a position of strength over the past decade, which has in turn helped to attract donors.

“It is natural for lenders to lend where they see the good [investment] outlook,” he said. “Even Japan has increased its funding for Bangladesh. They [Japan] believe that financing Bangladesh’s infrastructure development will create investment opportunities for them.

Bangladesh’s strong macroeconomic base, loan management and debt repayment capacity have led the World Bank to continue lending vigorously to the South Asian country, a Washington-based global lender official said.

Bangladesh has so far received more than $35 billion from the World Bank’s International Development Association (IDA) under a program at the lowest interest rates – the highest amount granted to one country.

Mehrin Ahmed Mahbub, senior external affairs officer at the World Bank, said Bangladesh “performed well” in its development work with the line of credit provided by IDA. “Bangladesh has never defaulted despite huge loans from the World Bank fund,” she said.

Mehrin said poverty reduction is Bangladesh’s main development goal and highlighted the significant progress made by the country over the past decade. She also hailed the pace of Bangladesh’s economic recovery from the pandemic crisis.

“Even poverty has been slightly alleviated instead of increasing in 2020 and 2021. These factors testify to the strength of Bangladesh’s economy,” the World Bank official said.

Mehrin believes World Bank assistance is one of the key factors in Bangladesh’s economic strength, with the global lender’s credit support for the country increasing 500% over the past three decades, from 800 million $1.8 billion per year in the 1990s to $1.8 billion per year in the 2010s.

“Bangladesh has done well in terms of development. But the government must be careful to keep inflation under control,” she said.


When asked if the World Bank provides similar support to Sri Lanka, Mehrin contrasted the economic situation of the two countries. Sri Lanka does not get low interest loans because it is a developing country, while Bangladesh has just become eligible to move to a developing country.

Sri Lanka’s external debt was 60.9% of the country’s nominal GDP in 2020, down from 66.4% in 2019.

The country’s central bank said on Tuesday it had become “difficult and impossible” to repay foreign debt, as it tries to use its dwindling foreign exchange reserves to import essentials like fuel.

The island nation’s reserves have fallen by more than two-thirds in the past two years as tax cuts and the COVID-19 pandemic have severely damaged its tourism-dependent economy and exposed government spending fueled by debt.

Street protests over fuel, electricity, food and medicine shortages have been going on for more than a month.

On the other hand, Bangladesh’s debt stood at $55.44 billion in February 2021, or 13.32% of the country’s GDP.

Ahsan H Mansur, executive director of the Policy Research Institute, doesn’t think it’s fair to compare Bangladesh’s external debt with its GDP because “our GDP doesn’t work like other countries’.”

Neighboring India, for example, generates around 20% of its GDP from revenue each fiscal year, while Pakistan earns around 18%. “Even African countries generate revenues amounting to about 20% of their GDP on average. However, Bangladesh’s revenue is less than 10% of its GDP,” Mansur said, explaining why the GDP-to-debt ratio is not meaningful for analysis in the current context.

Asked whether growing debt and the trend of taking on more loans could put the country in a hole like Sri Lanka, Dr Zahid Hussain, former senior economist at the World Bank’s Dhaka office, said the Bangladesh’s external debt is not close to the red line at present.

November 10, 2021: The dream of people in southern Bangladesh has come closer to reality with the launch of the Padma Bridge launch.  The 100 mm thick pitch is poured in two layers - 60 mm for the first layer and 40 mm for the second.

November 10, 2021: The dream of people in southern Bangladesh has come closer to reality with the launch of the Padma Bridge launch. The 100 mm thick pitch is poured in two layers – 60 mm for the first layer and 40 mm for the second.

Citing a 2010 study by the International Monetary Fund, he said a foreign debt-to-GDP ratio of 90% is tolerable for a developed country while the limit is 65% for a developing country. Currently, Sri Lanka’s loan to GDP ratio is around 110%.

Although Bangladesh’s debt-to-GDP ratio is in much better shape, Zahid raised concerns about a few recently launched megaprojects.

Lenders allocate funds for disbursement considering the debt realization prospects of a particular project based on its feasibility in terms of increasing national income, he said.

If a project cannot generate the revenue needed to repay the loan, the debt puts a strain on the national economy, he said. The effect will multiply if a series of projects do not generate sufficient revenue to repay the loans.

“For example,” he said, “no returns have yet come from the Rooppur nuclear power plant project, but Bangladesh has already started the first phase of repayment. The second phase installments will have to be paid from the next fiscal year.

“Therefore, the project will become a headache for the national economy if it cannot be completed in time.”

The total cost of the Russian-backed project is estimated at 1.13 trillion taka. Russia is lending Bangladesh Tk 910.4 billion for the project.

A metro train runs along the line to Shewrapara from Dhaka as part of a trial trip on Sunday, December 12, 2021. Photo: Asif Mahmud Ove

A metro train runs along the line to Shewrapara from Dhaka as part of a trial trip on Sunday, December 12, 2021. Photo: Asif Mahmud Ove

Zahid said Sri Lanka, once considered the strongest economy in South Asia, has implemented megaprojects to serve its political and personal interests. Today, the country is in difficulty because the projects are not generating the expected income.

“They [Sri Lanka] spent billions of dollars on the deep-water port of Hambantota and a nearby airport, but the project was not really necessary. Therefore, the country could not derive any revenue from it. »

“Additionally, huge funds from the projects would have been laundered overseas,” he said.


Prime Minister Sheikh Hasina ignored concerns over Bangladesh’s economy suffering the same fate as Sri Lanka’s due to increased external lending. She said her government was exercising caution before accepting any foreign investment, not just loans.

“We always account for expenses related to development projects. We calculate how much we can gain from development using the loans and how much it will benefit people,” she said in a meeting on Monday.

“Each plan is detailed, [taking into account] how many people will have access to it and how much it will contribute to our economy. We keep all these factors in mind.

A few days earlier, she had told parliament that her government was saving money by completing development projects quickly.

Economist Mansur believes the country needs more funds, even in the form of loans, to achieve its economic goals in light of government plans to transform Bangladesh into a developed nation by 2041.

Mansur, a former IMF official, said Bangladesh will need to establish a strong position in the global economy after it fully ascends to the developing country category in 2026. “So we need to develop infrastructure significantly. As such, we will need huge loans.

“We still have a lot of megaprojects going on. We need to create an investment-friendly environment by implementing many more major infrastructure projects in the years to come.

“Again, there is a need to make the most of foreign loans with caution,” he said, stressing the need to move the country forward by building its economic capacity through appropriate use of foreign loans.

[Writing in English by Osham-ul-Sufian Talukder and Arshi Fatiha Quazi, edited by Turaj Ahmad]