Javed Hosein :
Last week, World Bank and Bangladesh Government signed a deal through which the country assumed additional USD 250 Million in loans (termed as a grant)to help create jobs amid the Covid-19 crisis.
With this financing, the total World Bank financing under the Programmatic Jobs Development Policy Credit Series stands at USD 750 million.
Not just donor agency debts, combined with foreign suppliers’ credits in government development projects and private sector foreign loans, the forex debt load on Bangladesh economy has crossed USD 70 billion. This figure is the highest in the country’s history.
The rate of increase of country’s foreign debt in recent times seems alarming especially against record forex reserves of Bangladesh.
Call it grants, deals or suppliers’ credit, these are all different forms of debt that must be repaid with our foreign exchange earnings through remittances and exports.
Despite branding ourselves as an export-oriented economy, Bangladesh has been running deficits in its current account: meaning our import bill is larger than our export bill.
Our exports had started declining even before the pandemic started. During fiscal year 2020, our exports according to data provided by the Export Promotion Bureau declined more that 17%.
While many foreign companies have showed interest in investing in the many Economic Zones in the country, the actual foreign direct investment fell to USD 1.15 billion during the first half of 2020. In fact, foreign direct investment reached recent peak USD 1.692 billion in 2019. Especially for a USD 300 billion economy, such FDI figures can be considered negligible. Of course, we hope these numerous economic zones and various related government incentives will bring increased investment after the pandemic is over.
The one bright side for Bangladesh economy has been remittance earnings by our migrant workforce. During this pandemic our migrant workers have been sending record amounts to their families. During the first 9 months of current fiscal year, foreign remittances observed a dramatic rise of 35% hitting total of USD 18.6 billion. However, our neighbor India experienced the largest number of returns of migrant workers in past 50 years. The case of Bangladesh cannot be too different in this regard.
The economics of remittance is quite interesting, migrant workers send primarily dollars and their families receive Bangladesh Taka. The foreign currency ultimately supports discretionary spending of the Bangladesh Government to take on debt, pay for infrastructure projects and finance imports.
We cannot deny the simple fact that our entire forex reserve balance of over USD 40 billion has been possible by contributions from our migrant workers.
We cannot also deny the fact that majority of Bangladeshi migrant workers send us valuable foreign currency from oil-dependent economies which are at high-risk of severe downturn in their petrodollar earnings.
Thanks to developments in battery technologies electric vehicles are approaching price parity with their fossil fueled counterparts. The world is also moving to renewable sources to power global economies.
The global apparel industry is also going through a major transformation. Gadgets such as iPhones, iPads and wearable electronics are attracting consumer discretionary money away from clothing. In fact, as a percentage of disposable income money spent on apparels has been declining for some time in the west.
Basically, we cannot rest on the progress we have made in expanding our remittance income from migrant workers and past growth in garments exports to payback our long-term foreign currency dominated obligations.
Some economists may argue, as a percentage of GDP our foreign debt is low. However, the reality is Bangladesh’s foreign currency earning capacity also is more precarious than ever. Bangladesh government therefore must track and publish its remittance spending separately to ensure ‘we – the Bangladeshi people – don’t end up in a foreign debt trap in the near future’.
(Mr. Javed Hosein is Managing Director at Energis Power
Corporation Ltd. )
