Demystifying Bangladesh’s Debt Burden: What Does It Mean for the Economy?

According to the most recent data from the Bangladesh Bank, the foreign debt in Bangladesh has reached $100.6 billion by the end of 2023, showing a $4.1 billion increase compared to the previous year. The governmental sector assumed a substantial amount of foreign debt, totaling $79.69 billion, while the private sector took on the remaining debt. The majority of the loans have a long-term duration, while a smaller portion are short-term. The foreign debt, although relatively small in comparison to the country’s gross domestic product, is still worth noting. However, it is worth noting that the debt to GDP ratio is relatively low at 35.6%, and the external debt accounts for only around 23% of the total GDP. Bangladesh’s debt-to-GDP ratio sets it apart from many other nations, as it is comparatively lower. This phenomenon highlights the country’s ability to effectively manage its debt in relation to the size of its GDP.

The Global Debt Crisis and Its Spillover Effects in Bangladesh

Debt has seen a significant increase, reaching 336% of the global gross domestic product. In 2012, advanced economies had an average debt-to-GDP ratio of 110%, while emerging economies had a ratio of 35%. The fourth quarter of 2022 saw a significant increase of 334%, as reported by the Institute of International Finance’s latest global debt monitor report.

Table 1: The Increasing Global Debt Percent of GDP

Source: file:///D:/Users/Researchers/Downloads/2023-09-2023-global-debt-monitor%20(3).pdf

 In late 2023, the combined value of sovereign and corporate bond debt reached nearly USD 100 trillion, which is roughly equivalent to the size of the global GDP. The total OECD government bond debt is expected to reach USD 56 trillion by 2024, which represents a significant increase of USD 30 trillion since 2008. In 2023, global corporate bond debt reached an impressive USD 34 trillion. What’s even more remarkable is that over 60 per cent of this increase since 2008 can be attributed to non-financial corporations. The report reveals that the debt-servicing costs for the 24 poorest countries are projected to significantly increase in 2023 and 2024, potentially rising by up to 39 percent.

Table 2: Debt Picture of the Developing World 2023

Debt Picture of The Developing World

Country Total Debt % of GDP % of Total Wealth
Brazil 1.49 trillion USD 71.5 44.1
Mexico 880 billion USD 52.9 42.7
India 648 billion USD 18. 52.1
Turkey 476 billion USD 46.2 33
Indonesia 395 billion USD 29.1 45
Poland 385 billion USD 49.3 24
Thailand 282 billion USD 49.0 19
Argentina 275 billion USD 42.9 65
South Africa 263 billion USD 65.8 28
Malaysia 260 billion USD 58.1 38
Philippines 260 billion USD 58.9 25
Chile 233 billion USD 65.0 29
Taiwan 193 billion USD 24.4 3.5
Colombia 188 billion USD 56.0 33
Egypt 165 billion USD 42.7 13
Kazakhstan 161 billion USD 65.7 22
Romania 158 billion USD 45.4 23
Hungary 147 billion USD 160 32
Pakistan 131 billion USD 37.2 19
Ukraine 124 billion USD 81 18
Denmark 123 billion USD 119 6
Slovakia 121 billion USD 112 44
Bangladesh 100 billion USD 23 8

Source: https://www.ceicdata.com/en/indicator/external-debt

The Debt Profile of Bangladesh in Comparison to Other Developing Countries

Bangladesh stands out in the context of emerging nations burdened by substantial debt. Bangladesh’s debt amounts to 100 billion USD, which is equivalent to 23% of its GDP and represents 8% of its overall value. This positions Bangladesh in a more advantageous position in comparison to many of its counterparts in the developing world.

Brazil is now the frontrunner in terms of group debt, with an astonishing sum of 1.49 trillion USD. This debt represents 71.5% of Brazil’s GDP and 44.1% of its overall wealth. Mexico’s debt is at 880 billion USD, representing 52.9% of its GDP and 42.7% of its wealth. India, despite its booming economy, now has a debt of 648 billion USD, which accounts for 18% of its GDP and a substantial 52.1% of its whole wealth. Turkey and Indonesia have debt-to-GDP ratios of 46.2% and 29.1% respectively, with loans amounting to 476 billion USD and 395 billion USD. Their loans account between 33% and 45% of their whole wealth, indicating a significant financial strain. Argentina stands out as a remarkable country with a debt of 275 billion USD, which represents 42.9% of its GDP and a significant 65% of its wealth. Similarly, South Africa has a debt of 263 billion USD, accounting for 65.8% of its GDP and 28% of its value.

On the other hand, Bangladesh’s debt problem seems to be more easily controlled. The debt-to-GDP ratio of the country is 23%, which is one of the lowest. It is only slightly higher than Taiwan’s ratio of 24.4%, but far better than Hungary’s ratio of 160% and Slovakia’s ratio of 112%. Furthermore, the ratio of debt to Bangladesh’s overall wealth, which stands at 8%, is the most minimal among the countries being compared. This suggests that Bangladesh has a very robust economic position.

This research compares Bangladesh’s debt levels to those of other developing countries and emphasizes that Bangladesh has comparatively low debt levels. The analysis also indicates that the effect of this debt on Bangladesh’s GDP and total wealth is manageable. Overall, this positions Bangladesh well among other emerging nations.

Bangladesh has shown incredible resilience in the face of the global debt crisis, highlighting the strength of developing economies when confronted with external pressures and spillover effects. Despite facing numerous challenges, Bangladesh remains committed to overcoming them with resilience and resourcefulness. Effective debt management and responsible fiscal practices are of utmost importance for Bangladesh as it steers through the turbulent waters of the global debt crisis. Investments in infrastructure, human capital, and sustainable development initiatives are playing a crucial role in strengthening Bangladesh’s economic resilience and promoting inclusive growth. These efforts are helping to create a positive and sustainable future for the country. These initiatives have transformed from mere aspirations into crucial strategies for the country.

Invigorating Bangladesh’s Economy: Risk Mitigation and Policy Recommendations to Overcome the Crisis

External variables such as global economic downturns, commodity price variations, and global interest rate movements may all have an impact on Bangladesh’s ability to satisfy its debt commitments. These external variables may have a particularly significant impact on developing economies.

Bangladesh’s garment sector is a vital economic engine, accounting for a considerable portion of the country’s exports. In the case of substantial disruptions in this industry, such as changes in global demand or trade policy, foreign currency profits may be impacted, affecting the capacity to repay debt.

Maintaining sufficient foreign currency reserves is critical for servicing external debt commitments. It is critical for Bangladesh to have enough reserves in order to protect itself from possible external shock. To improve risk management and promote sustainable debt management, Bangladesh may consider considering the following policy measures.

To begin, diversifying the economy may help to strengthen it. By minimising reliance on a particular export industry, the economy becomes more robust to shocks that may occur in that sector. Furthermore, the execution of sound fiscal policies is critical for properly managing public finances and avoiding excessive borrowing. Governments may protect the stability and sustainability of their economies by implementing ethical financial policies.

Second, strengthen institutional capacity for debt management to guarantee that borrowing is done on favourable terms and for productive initiatives. Accumulating foreign currency reserves provide a safety net to defend against unforeseen occurrences and ensures adequate finances for debt repayment.

Third, Bangladesh must keep its debt levels manageable. The existing debt measurements show that the issue can be successfully handled. To maintain stability, it’s vital to evaluate and adopt smart fiscal policies. Additionally, greater economic development leads to higher GDP and easier debt management. Investing in infrastructure, education, and technology may help to drive economic growth and development. Diversification of the economy is critical for maintaining growth and limiting susceptibility to external shocks. By minimising dependence on a few industries, such as textiles, we can build a more diversified and robust economy. This will not only foster stability, but also provide new prospects for growth and development.

To summarise, Bangladesh stands out from its rivals with low debt-to-GDP and moderate debt-to-wealth ratios, indicating a solid debt management system. While there is no imminent risk, ongoing wise policy and strategic planning are essential for retaining this advantage in the face of global economic volatility. Vigilance is essential in controlling potential vulnerabilities and ensuring that borrowing stays below sustainable limits, therefore sustaining the country’s economic growth and development trajectory.

– S. M. Saifee Islam is a Research Associate at the KRF Center for Bangladesh and Global Affairs (CBGA).

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