The new medium-term debt strategy for FY25 to FY27 of the government has identified half a dozen risks which are likely to have negative impacts on the management of borrowing liability amid pressure on foreign exchange reserves.
Inflation, exchange rate, banking and non-banking financial sector, contingent liability, fiscal position, and external factors are the macroeconomic risks that may have implications for debt management strategy, according to a publication released by the finance division in the past week.
Economists said that risks identified under the fiscal position of low revenue generation against a falling tax-to-GDP ratio, exchange rate volatility, and growing contingent liability were most critical.聽
The government must generate higher revenue to avoid debt distress, said executive director Ahsan H Masnur of the Policy Research Institute.聽
According to the strategy, revenue shortfalls and the overshooting of expenditure in comparison with baseline fiscal projections will require extra borrowing from local and foreign sources.
The National Board of Revenue has failed to achieve revenue targets in the past 12 financial years until FY 23, despite mostly downward revisions, which forced a 177 per cent increase in government borrowing in the eight financial years ending FY23.
The Centre for Policy Dialogue distinguished fellow Mustafizur Rahman said borrowing by the government was increasing for debt payment, which, according to him, is not a good sign.
The total debt as a percentage of GDP decreased to 26.2 per cent in FY17 from 35.9 per cent in FY07 before taking an upward trend to reach 36.0 per cent in FY23.
At the end of FY24, domestic debt is projected to be 56 per cent of the total debt stock, and the remaining 44 per cent is external debt, compared to 63 per cent and 37 per cent external debt at the end of FY20.
The over 10 per cent rise in external debt in five years has made foreign debt management challenging, especially due to the exchange rate, contingent liabilities, and external factors, said the economists.
According to the strategy, the exchange rate of the local currency, the taka, may experience further depreciation if the interest rate remains high in developed countries.
External loan servicing may become expensive in terms of local currency, according to the strategy.
The Economic Relations Division has already calculated the foreign loan repayment at Tk 57,800 crore in FY25, compared to Tk 37,775 crore in FY24.
An increase of 53 per cent in debt payment has been attributed to around 30 per cent devaluation of local currency in the past two years.
The outstanding contingent liability of the government stood at Tk 1, 17,094.03 crore by FY24 from Tk 98,591.29 crore in FY23, recording a 26 per cent increase amid fresh guarantees extended to the mainly struggling power, fertiliser, and aviation sectors.
Any borrowing of state-owned enterprises and autonomous bodies from non-government entities under the sovereign guarantee or the counter guarantee results in contingent liability to the government.
According to finance division officials, such contingent liability may become a liability to the government if the SoEs or autonomous bodies fail to pay those on time.
The government鈥檚 outstanding foreign debt already stood at $62.4 billion in FY23, marking more than a threefold increase in 14 years.
In February, finance minister Abul Hassan Mahmood Ali said that the government was under pressure to meet the repayment obligation of foreign loans taken to implement development projects.
The government of Bangladesh has already successfully negotiated with the International Monetary Fund to increase the amount of the third tranche to $1.15 billion from the previous
projection of about $690 million to strengthen the forex reserve.
Former Bangladesh Bank governor Mohammed Farashuddin said that they had already asked the government for debt restructuring amid the ongoing dollar shortage.
The forex reserves have dropped below $20 billion from $48 billion in August 2021.
