Bangladesh’s foreign debt in both public and private sectors has increased by 2.65 billion to $95.85 billion in April-June quarter, raising concern over external debt repayment obligations, economists say.

They say such an increase had never happened earlier and it would have a severe impact on the forex reserves of Bangladesh, which is already under pressure from deteriorating global economic situation.

The economists say careful austerity measures and their proper implementation in spending money from foreign reserves should have been in place for at least next two years as an acute recession looms large in the Western world.

Read: Bangladesh has one of the lowest debt-to-GDP ratios: Finance Minister tells ADB

According to Bangladesh Bank (BB) data, the external debt, both in public and private sectors, reached $95.85 billion in June 2022.

This includes $59.9 billion in long-term debt in general (government) sector, but no short-term debt. But short-term debt in other government sectors climbed to $2.89 billion and has a higher interest rate, BB data revealed.

The external debt in the private sector is $25.95 billion, where the short-term debt is $17.75 billion and the short-term trade credit is $11.96 billion.

Dr Debapriya Bhattacharya, economic analyst and distinguished fellow of Centre for Policy Dialogue (CPD), told UNB that external debt increased alarmingly by $2.65 billion in the last quarter of the fiscal year 2021-22, which has never happened before.

This has also led to an increase in total debt as a share of GDP. For example, total debt-to-GDP ratio increased from 15.5% in FY20 to 16.9% in FY21, according to Economic Relations Division data.

Dr Debapriya pointed out that there are two distinctive features of the said increase.

He said the increase in debt obligation is comparatively more driven by public-sector borrowing while external borrowing has been accruing on account of short-term borrowing.

“One wonders for which public sector projects such costly foreign loans were accessed,” he said.

Dr Debapriya underscored that the exchange rate risks associated with these external loans is increasing rapidly.

He said the taka depreciated by around 20 percent against the US dollar in the last three months (July-September 2022) in the country, increasing the external debt repayment burden in terms of Taka.

The interest risk may also increase in the coming months as global financial market is raising the interest rate in the face of increasing inflation, he said adding that the next two years are very crucial for the domestic economy in the context of the global turmoil.

“So, the government should refrain from costly borrowing by withholding new development projects requiring such funding,” he said.

Read: Bangladesh’s foreign debt flow down by 24.38% in July-Aug: ERD report

Dr Debapriya said notwithstanding certain level of export revenue and remittance inflow growth, the deficits in trade balance and in the current account are widening.

“In such a situation increasing external debt servicing liability will further aggravate the challenges of the domestic economy,” he said.

Economist Abu Ahmed, a former professor of economics at the University of Dhaka, said the domestic economy of different countries, including Sri Lanka, Pakistan, and Argentina collapsed due to the impact of external debt.

The experts of the government policymakers are driving policy toward the wrong paths, their projection on export growth is not realistic, considering the global economic situation, he said.

“If the government is not aware as a precaution, terrible economic turmoil may hit Bangladesh, while the trade gap is becoming wider, the balance of payment and current accounts are also in disfavour,” Prof Abu said.

According to data from the Economic Relations Division (ERD) Bangladesh's external debt repayment obligation will double in the next three years.

The country repaid over $2 billion in external debt in FY 2021-22 and the amount is projected to double and cross the $4 billion by FY2024-25.

The ERD, however, said the external debt has been rising in absolute terms, but it has been declining as percentage of the gross domestic product (GDP).

The ERD's debt sustainability analysis said Bangladesh's external debt stood at 12.94 percent of the GDP in the 2020-21 fiscal year, down from 13.36 percent in FY20 and 14.71 percent in FY19.

The ERD officials also said the government should be cautious while choosing the loan currency and payment currency.