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‘Bangladesh won’t meet economic fate of Sri Lanka’

Published : Wednesday, 18 May, 2022 at 12:00 AM  Count : 657

‘Bangladesh won’t meet economic fate of Sri Lanka’

‘Bangladesh won’t meet economic fate of Sri Lanka’

A section of the people including renowned experts, economists, intellectuals and leaders of opposition parties and former bureaucrats believe that Bangladesh will soon be on the verge of economic collapse like Sri Lanka, because of the mega projects and development works the country has undertaken with foreign loans over the last 11 years. However, another section of the people comprising economic analysts, ruling party leaders and incumbent bureaucrats think Bangladesh won't meet the fate of Sri Lanka, due to pragmatic economic policies and measures, the country undertakes time to time.

But the ongoing debate and speculations on the probable future economic fate of the country has shaken the confidence of the majority people most of whom become shaky about their future. The issue has taken the centre stage after Sri Lanka, once projected to become the Singapore of South Asia, the country with a 100 percent literacy rate and a per capita income of $4,000 has now become a loan defaulter.

Interestingly the Bangladesh experts were almost silent when the government started taking up mega projects in the middle of 2010s and become vocal when Sri Lanka has become nearly bankrupt failing to repay foreign debts taken against certain mega projects that have low returns.

Perhaps the experts were silent when Bangladesh took up mega projects thinking that the government won't be able to implement those due to shortage of fund and embedded corruption. However, they have probably been puzzled when most of the mega projects are being implemented one after another, though a little behind schedules. For example multi-purpose 6.15 km Padma Bridge is expected to be opened for public by the end of the next month.

With the deterioration of Sri Lanka economy followed by subsequent political turmoil the experts and the talk-show stars have started panicking the nation rendering that Bangladesh will soon meet the fate of Sri Lanka, where newly appointed Prime Minister Ranil Wickremesinghe took charges on May 13 last to save the Island Nation from financial collapse and instability. Initiating mega projects based on foreign loans, reduction of remittance through legal channels, the negative impact of the Covid-19 pandemic on tourism and a many other factors contributed to deterioration of the country's economy.

However, Bangladesh experts including those having pessimist attitudes over the country's economy and its ongoing mega projects acknowledge that in terms of economic indicators, Bangladesh is in a much more comfortable position than Sri Lanka. But they see and expect that the current stable economic condition may not persist in next five years, unless the government stops some of the mega projects, or steps down ahead of the next election due in the end of the next year or early 2024.

They say for the ongoing plight of Sri Lanka, some wrong economic policies, including reduction of value added tax to 8 per cent from 15 and withdrawal of rebuilding tax were responsible. This caused the government's revenue to fall by 30 per cent overnight. They also acknowledge that the revenue collection in Bangladesh is much higher than Sri Lanka.

In the recent year Sri Lanka also faced debacle in agriculture following wrong fertiliser policy. At the same time its booming tourism industry collapsed hit by Covid-19. Sri Lanka food production collapse forcing the government to spend $450 million for food import and this gradually caused foreign currency reserves to dwindle to $50 million, making it to import food, fuel or medicine. Compared to Sri Lanka Bangladesh produces adequate rice, fish, vegetable etcetera.

Bangladesh banking management is better than Sri Lanka, where the country's banking system failed to channelize the remittance inflow and the government failed to have adequate fund to import goods, food, fuel or medicine. Bangladesh's banking systems offered incentives by up to 2.5 per cent to encourage remittance inflow through banking channel, which fetches around $22 billion, beside some $12 billion in illegal channels like hundi) annually.

Remittance plays a big role in bridging trade gaps. With the sharp decline in remittance, Sri Lanka's foreign reserve depleted rapidly. The Sri Lankan rupee has been drastically depreciated to 320 to 335 against a US dollar.

Lanka implemented useless projects on Chinese loans, like the Hambantota Sea Port, Rajapakse International Airport, Chinese Colombo City and a few highways. They also collected $9 billion from the international market in exchange of debt bonds. As a whole, the foreign debt reached $51 billion, whereas their GDP was only $80 billion. When the time came to repay the loans, Lanka failed to pay an instalment amounting $8 billion and declare itself bankrupt.

However, experts say Bangladesh is in no imminent danger, despite having some 'unnecessary projects' like $12 billion Rooppur Nuclear Power plant on Russian loan. They say the plant has a meagre 2,400 megawatts production capacity. It's the worst kind of white elephant project. They claim Bangladesh can repay the debt in 20 years. But when the instalments will resume in 2025, every year we have to pay $565 million. But government experts believe that with increasing earnings from exports of commodities, readymade garments and services Bangladesh will be able to pay its debt instalments. In the past 50 years Bangladesh never failed to pay its debt instalments.

According to optimists section of the experts Bangladesh is still in a good position in the outstanding foreign debt-GDP ratio and the debt servicing liability as a percentage of foreign exchange from export, the two main indicators of debt management. So it is not fair to judge the economy of the two countries on the same scale.

However, they say Bangladesh has to learn from their situation. Even 10-15 years ago, Sri Lanka was one of the strongest economic powers in Asia.  But they undertook some big projects which are called white elephants. At that time, economists also gave many warnings but they did not hear them.

Going beyond the debt-to-GDP ratio of 90% for developed countries and 60% to 65% for developing countries, may create fear or put the loan recipient in a dangerous situation. Sri Lanka's debt-to-GDP ratio was about 110%, , once the best economy in South Asia, has implemented mega projects in the political and personal interests of the country.

However, some experts say the percentage of debt in the context of Bangladesh's GDP set by the IMF is a matter of concern that Bangladesh's total national debt is increasing at a faster rate than GDP. According to a research, in 2021, Bangladesh's total debt was $131.14 billion, or 46% of its total Gross Domestic Product (2005-2006 as a base year), which was 44.1% in FY21.

On April 10, 2022, the Bangladesh Bureau of Statistics (BBS) said that the per capita income in Bangladesh rose by 9% year-on-year to $2,824 in 2021-22. It was $2,591 in 2020-21, when  per capita debt was $432 or Tk37,584. As a result of this, the share of debt in GDP will increase in the foreseeable future. So according to economic experts, there is no chance that Bangladesh will meet the economic and political fate of Sri Lanka anytime as the government takes prudent fiscal policy.
The writer is the Business
Editor, The Daily Observer

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