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Debt burden as a percentage of revenue might be a source of concern: BIDS

30 March 2023

Business Report :
Due to Bangladesh's tax-GDP ratio not increasing over the year, the burden of debt financing is rising as a percentage of annual revenue collection, says Bangladesh Institute of Development Studies (BIDS).
Discussants said that a majority of the public debt over the last decade has been domestic and denominated in local currency even if it's taken at high interest.
In a seminar, BIDS gave a review on Bangladesh's debt development titled: "Fiscal Stance and Economic Development: Where is Bangladesh Headed?" on March 29.
Binayak Sen, director general of BIDS chaired the event.
Syed Mainul Ahsan, professor emeritus, at Concordia University, Canada and visiting professorial fellow at BIDS presented the keynote paper.
In his presentation, he said: "The rising burden of debt per year against the national revenue now is at 18% of the gross revenue. On one hand, the revenue is not growing in comparison to the GDP percentage. So, if the national revenue does not increase and the debt does not increase either, then the percentage ratio of the debt payment will increase and there will be an added burden on the government, especially on subsidy-dependent sectors such as health and education."
"One thing to note here is that in the foreign debt of the government, the interest rate is very low, while the interest rate of the internal debt is at a high percentage," he noted.
Regarding LDC graduation and foreign debt interest, he said that at present the interest rate is at 1%-2%, which will become 3% after LDC graduation.
According to the presented report, even at 2% annual growth, the stock of debt would rise to 74 in 20 years, with the annual revenue burden of debt finance rising to 15%.  
"Certain agencies, such as PetroBangla, may be guaranteed by the government. Still, PetroBangla is obliged to pay it, but the debt is guaranteed, therefore it was initially the government's responsibility. The government-guaranteed debt has risen to more than 40% of GDP," he added.
According to the BIDS assessment, Bangladesh is at low risk of external and total debt distress, citing IMF and World Bank reports. In the medium run, favourable debt dynamics keep the Public and Publicly Guaranteed (PPG) external debt-to-GDP ratio declining, while the overall public debt-to-GDP ratio stabilizes, although at a greater level than in the previous Debt Sustainability Study (DSA).
Even then, the debt carrying capacity for Bangladesh has been downgraded from strong to medium, based on the October 2021 World Economic Outlook (WEO) and the 2020 World Bank Country Policy and Institutional Assessment (CPIA).
The presentation shows the total public debt in Bangladesh stood at about $147.8 billion in FY21, around 41.4% of the GDP, of which the domestic debt was 58% of the total public and publicly guaranteed (PPG) debt stock.
Regarding how much debt can Bangladesh carry and what World Bank and International Monetary Fund (IMF)'s Debt Sustainability Analysis (DSA) 2022 say, he added that 55% of GDP, says WB-IMF, but the GDP ratio is not a solid indicator; as it involves a stock/flow comparison. Blanchard suggests using the debt service to Gross Domestic Product-Gross National Income (GDP-GNI) as the relevant benchmark.
Between 2003 and 2021 the deflator value rose from 126.35 (2003) to 249.42 (2021), which yields a compounded annual average of 3.85%. Thus the real yield has been about 5%, a bit higher in relation to high-income countries like the US at about 4.5% (Shiller's S&P 500 Index).
The presentation also stated that external PPG debt (the majority of which is multilateral) stood at $62 billion in FY21, around 17.5% of GDP (although, as a ratio of GNI, WB report the figure to be 19.6% of GNI, typically the latter exceeds GDP for BD.
Ministry of Finance and Bangladesh Bureau of Statistics (BBS) sources cite the external debt outstanding as of FY21 to have been about $51 billion, while the total PPG value is 62, a discrepancy of about 20%.
Regarding inflation, it said that the DSA analysis presumes long-term inflation to be about 5.5%.

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