Bangladesh's total national debt is increasing at a faster rate than Gross Domestic Product (GDP), according to noted economist Dr Debapriya Bhattacharya.
As a result of this, the share of debt in GDP will increase in the foreseeable future, he observed.
While the debt stress in the external borrowing is expected to increase due to the exhaustion of grace period of a number of high-value loans, the Achilles ' heel will be the burgeoning domestic debt, said Debapriya, distinguished fellow of the CPD.
Dr Debapriya hosted a conversation with the media titled "Deconstructing Public Debt of Bangladesh: Trends, Status and Outlook" on Monday to address the rising debt situation in the country that can distort the economy by undermining major macroeconomic variables such as economic growth, inflation and exchange rates.
According to a study, risk factors' status underpinning the debt situation in the country are: "High" risk of project cost escalation, "Increasing" risk of exchange rate and interest rate for domestic borrowing, and "Intermediate" risk of the interest rate for external borrowing.
Economic returns from project and maturity risk are yet to be assessed.
In light of this, the CPD fellow on Monday suggested fiscal consolidation through revenue uptake, safeguarding external sector variables and holistic, transparent and frequent monitoring.
A World Bank study suggests that a debt to GDP ratio above the threshold of 77% may lead to an adverse impact on the economy. But this varies from country to country; a ratio exceeding 100% doesn't necessarily indicate a bankrupt/insolvent country.
"For example, Japan has had a ratio well over 200% for more than a decade without any signs of defaulting. Therefore, a high ratio does not always indicate a country's likelihood of default," Dr Debapriya noted.
"Markets usually attach low probabilities of the debt crisis to countries with a strong record of being fiscally responsible. While countries do need to keep public debt ratios within a safe limit, a certain public debt target may not be necessary," he opined.
According to IMF, the total public debt (as % of GDP) for Bangladesh (34.7%) was among the lowest in South Asia in FY20, with Sri Lanka (112.2%) and Bhutan (120.7%), being the highest.
The economic report said the total outstanding debt amount in FY21 in Bangladesh was $131.14 billion. It increased by $16.45 billion on average over the past 3 years, which was about 2.5% of GDP.
In FY21 alone, total public debt increased by more than $18.64 billion (an additional 2.2% of GDP) of which more than 54% was domestic debt.
The total debt as a percentage of GDP has increased between FY18 (29.5%) and FY21 (36.9%) following a decrease between FY08 (38.8%) and FY17 (28.2%), the report noted adding that the linear decadal growth rates were 44.1% (FY02 to FY11) and 66.6% (FY12 to FY21).
Besides, the annual increase of outstanding debt from FY20 to FY21 was US$9.62 billion and per capita outstanding debt was US$432 in FY21.
The report further added that total debt servicing liability – for revenue expenditure, exports and GDP - exhibited an erratic but lowering trend between FY06 and FY21.
The payments to four selected high-value projects financed by external loans and two by supplier's credit – at least US$10.5 billion - are yet to start, according to the policy watchdog.
The economist, meanwhile, warned that the repayment implications for macro economy will become evident from 2024-25 onward.