Rising Foreign Loans 'Could Hurt Economy'
Monday, 31 May 2010

Bangladesh's foreign loans have shot up 32 percent in the first 10 months of the current fiscal year compared to the previous year, underlining the economy's institutional weakness, a former advisor says.

The overseas grant receipt has dipped 22 percent during the same period, former commerce advisor to the caretaker government Hossain Zillur Rahman told bdnews24.com by telephone.

It should be seen as an alarm for the economic policy and exposes the institutional weakness in securing aid and grants, according to him.

Until April this year, Bangladesh received a total of $1371.24 million in loan and $368.13 in grant. Last year, it received $1031.35 million in loan and $475.68 million in grant.

"Considering the size of the economy this drop will not create that much of a problem for us but it means that resource availability for the economy has gone down," Zillur said.

Executive director of private research think-tank Centre for Policy Dialogue, Mustafizur Rahman, told bdnews24.com that the fall in the amount of grant will not create that much pressure on the economy.

"Considering the present state of the economy, the fall in grants and increase in loan will not create huge pressure on the economy. Average annual loan repayment is around $700 million and this is less than 4 percent of our export and remittance earning," he said.

"Gradually the amount of loan will increase and grant will decrease.

"This means that debt-servicing or the repayment for loan will eventually go up and the economy has to make sure that the money is properly utilised," Rahman added.

Economist Abu Ahmed said the fall in grant is a fallout of globalisation and the economy has to face the challenge.

"Grants were a political instrument of the Cold War era but now with the globalisation this will eventually go down and commercial loan will increase.

"Though the loan figure has gone up but the amount of actual loan has gone down," he told bdnews24.com.

Ahmed said the economy will have to pay more in repayment and have to soak the pressure.


Until April 2010 (in the 10 months of the current fiscal year) Bangladesh repaid a total of $ 709.891 million in loan. During the same period last year, the figure was $684.99 million.

In the 10 months of the current fiscal year, major loan providers were Asian Development Bank ($ 969.84 million), World Bank ($ 283.65 million), IFAD ($ 9.39 million), Japan ($ 68.08 million), Kuwait ($ 11.28 million), and South Korea ($ 13.86 million).

Major grants were provided by UK's DFID ($ 107.00 million), European Union ($ 41.45 million), Germany ($47.93 million), IDA ($ 24.54 million), UN systems ($ 50.06 million), and WFP ($ 70.80 million).

According to the Economic Relations Division, target for repayment of foreign loan by June 2010 is set for Tk 5,950 crore--of which, principal payment is Tk 4,550 crore and interest payment is Tk 1,400 crore.

Source: bdnews24.com

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