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Sunday, August 25, 2019

Unnecessary loans: Country may fall in a debt trap

IN a span of five years, it is feared that country's external credit will more than double amid high growth of suppliers credits and short-term borrowings to financing the big infrastructural projects. The high growth of such loans taken mostly on 'political consideration' with high interest rates against short maturity period will take the overall stock of external debt to Tk 5,08,940 crore in 2021-22 from Tk 2,34,670 crore in 2016-17. The unpleasant situation has come up in the Finance Ministry's medium-term macroeconomic outlook. Taking loan without justification is an utter negligence to the interest of future generation as well as the economy.
The debt repayment Tk 13,953 crore in the just-concluded fiscal year and Tk 15,725 crore projected for the current FY would increase significantly beyond 2022 with maturity of the growing short-term borrowings in place of the falling long-term loans on easier terms. The Bangladesh Bank's 'Financial Stability Report 2018' released in May highlighted that the short-term external debt was in a rising trend and stood at 4.5 per cent of the gross domestic product in the FY 2017-18 from only 1.3 per cent in 2011-12.
Credit on favourable terms like one per cent interest rate with long maturity period, extended mostly by the World Bank and the Asian Development Bank, was falling with the country's emergence as a middle-income economy. Whereas suppliers' credit and commercial borrowing at high interest rates from sources like India, Russia, China and merchant banks have increased substantially in recent years for financing the costly projects like Rooppur Power Plant, Dhaka Metro Rail, Padma Bridge Rail Line and Karnaphuli Tunnel.
Undoubtedly, implementing projects with short-term borrowing carries a number of risks in the county where delay in project execution is a normal. Observers said the prices of goods purchased with suppliers' credit were said to be several times higher to the market rates. There is a risk for the country's future generation of facing debt crisis if projects fail to deliver expected economic gains. We fear country may be in a debt trap if the current trend continues.