Amid inadequate revenue collection, the government is borrowing afresh to repay its previous loans, said Centre for Policy Dialogue (CPD), a local think-tank, on Thursday (April 4).
The CPD also said that outstanding public and publicly guaranteed (PPG) debt as percentage of revenue earnings and export of goods, and services and remittance earnings have reached 200%.
Publicly-guaranteed debt is the long-term external obligations of public debtors, such as the government, and the external obligations of private debtors that are guaranteed for repayment by a public entity.
The CPD, in cooperation with The Asia Foundation, organised a discussion titled, "Bangladesh's External Borrowings and Debt Servicing Scenario: Are There Reasons to be Concerned?" at Lakeshore Hotel in the capital on Thursday.
Prime Minister's economic adviser Dr Mashiur Rahman attended the discussion as the chief guest.
Professor Mustafizur Rahman, distinguished fellow of the CPD, delivered the keynote address.
Participants at the discussion also suggested that the government enforce a zero-tolerance policy against tax evaders.
While presenting his keynote paper, Professor Mustafizur Rahman said: "The government is borrowing to repay a large part of its PPG debt obligations. Therefore, there is no alternative but to rapidly increase domestic resource mobilisation," he said.
In his presentation, it has been pointed out that the rate of external borrowings and debt servicing obligations have increased in recent years.
Bangladesh's public and private external debt was $98.9 billion in June 2023, and it crossed the $100-billion mark in September 2023.
Mustafizur Rahman also noted that the current external debt-to-GDP ratio of 21.6% is not as high compared to other countries.
The presentation also stated that outstanding public debt as a percentage of revenue earnings and exports of goods and services and remittance earnings have been rising sharply in recent years.
Projections are that these will rise further over the next few years.
However, he warned against complacency, emphasizing that the capacity for repayment was of critical importance.
The CPD also highlighted that the composition of the debt portfolio is rapidly changing.
The proportion of concessional loans is decreasing, while the share of non-concessional and market-based loans is increasing. Loan terms are also becoming more stringent.
Mustafizur Rahman expressed concerns about the rapid increase in both external borrowings and debt servicing obligations, especially when compared with the growth of GDP, revenue earnings, exports, remittances, and foreign exchange reserves.
The CPD also said that Bangladesh's revenue-GDP ratio was one of the lowest in the world. This coupled with the debt-carrying capacity and debt-servicing strength raises concerns.
An increasing portion of domestic resources is being used to repay the principal and interest of domestic and external loans.
"At the end of the day, it is the domestic resource mobilization that will need to underwrite the debt servicing for both domestic and external borrowings," Rahman added.
The think-tank urged the authorities concerned to give the highest priority to enhancing domestic resource mobilization (DRM) through taxation, particularly by raising direct taxes, reviewing tax expenditures and incentives, closing loopholes and broadening tax net.
Former Bangladesh Bank Governor Dr Salehuddin Ahmed, and Metropolitan Chamber of Commerce and Industry (MCCI) president and Kamran T Rahman attended the discussion as panelists.
Dr Mashiur Rahman said export diversification and improvement of export capacity is very important. As per the national perspective, it is very important to improve our capacity for export and improve our capacity for production.
He said there is enormous scope of productivity improvement.
"Investment in modernisation, improvement in machinery is also important for productivity improvement," he added.
Dr Debapriya Bhattacharya, distinguished fellow, CPD and former ambassador and permanent representative of Bangladesh to the WTO and UN Offices in Geneva, attended the discussion as special commentator.
"Apart from government or PPG borrowings, there is also private sector borrowings. If you calculate, it will appear that 80% of the foreign debt is from the government and 20% is taken by the private sector," he said.
"The question is about the private sector loan situation. Not only government debt but also private sector foreign loans should also be discussed seriously," he added.
CPD Chairman Professor Rehman Sobhan and Country Representative, The Asia Foundation – Bangladesh Kazi Faisal Bin Seraj were also present at the event, while Dr Fahmida Khatun, executive director, CPD, chaired the session.
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