Govt’s debt servicing bloats on soaring loans, declining grants
June 29, 2009
FHM Humayan Kabir — The country’s annual debt servicing in the last financial year swelled to a record US$1.97 billion, making it the biggest chunk of expenditure in the national budget, officials said Saturday.
The amount was up by $414 million compared to the previous fiscal year and it made up 15.7 per cent of the total budgetary expenditure — higher than the spending in education and health.
Finance ministry officials said the debt service payment represented 15.53 per cent of country’s total merchandise exports, 9.2 per cent of exports of goods and services including remittances and 2.5 per cent of the gross domestic products (GDP).
“Increasing receipt of foreign loans, start of repayment period of big loans due to expiry of grace period and un-favourable exchange rate are the major reasons for higher debt payment,” an Economic Relations Division (ERD) official told the FE.
Large trade deficit, widening gap between savings and investment, slow growth of revenues and a rapid growth of public expenditure have also contributed to the soaring amount of debt servicing, the official added.
The government statistics showed that after the payment of $1.965 billion principals and interests against all the public sector loans, the outstanding debt of the country has stood at $21.26 billion till June last year 2008.
Per capita debt obligation of the country stood at $149.54 in the last FY2008.
Every year the government meets its mounting development expenditure by taking medium and long-term loans from donors such as the World Bank, Asian Development Bank and Islamic Development Bank (IDB.
It also borrows from bilateral donors such as Japan government, the United States, Saudi Arabia for executing projects and purchasing items such as aircraft, ship and food grains on deferred payment.
The ERD official said the debt servicing has crossed the one-billion-dollar-mark in FY2004 due to higher borrowing over the last decade.
Another senior ERD official said the debt repayment could have been much higher than the present amount if the Japan government did not write off principal and interests on 36 Japanese loans signed before June 1989.
“If Japan did not waive the aids and interests, we had to repay $1.46 billion additional money to the donors,” he said.
The official said grant or donation by donors has been shrinking fast in the total aid package since 2000, worsening the debt status of the country.
He said till late 1990s donors’ grant accounted for more than 45 per cent of the total aid. But it started to decline significantly from earlier this decade.
Last year, the government received $658.11 million worth of grant from different multilateral and bilateral donors while loan was $1.4 billion.
Research Director of Bangladesh Institute of Development Studies (BIDS) Zahid Bakth told the FE that the total debt liability would worsen in the near future, pushing the country towards a “debt-trap.”
“Investment has shrunk, exports and remittance growth have been slowing down and the global outlook is not so good, meaning that the government has to rely on increased foreign aid to meet its bulging expenditure,” Bakht said.
“These are ominous signs for the economy. The government must act fast to cut its dependence on foreign loans, particularly those tagged with tough conditions,” he said.
Bakth said the quality of public expenditure should be ensured in an effort to make the best use of the debt.
“Only then the country would get better return from the loans and the debt repayment will be easier,” he added.
Source: thefinancialexpress-bd.com
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