Sri Lanka has been mired in economic turmoil over the past few months. The country is battling severe shortages of essential items and running out of petrol, medicines, and foreign reserves amid an acute balance of payments crisis.
The resulting public fury targeting the government triggered mass street protests and political upheaval, forcing the resignation of Prime Minister Mahinda Rajapaksa and his Cabinet and the appointment of a new prime minister.
Many in Bangladesh fear that their country could face a similar situation, given the rising trade deficit and foreign debt burden.
Bangladesh imported goods worth $61.52 billion in the first nine months of the 2021-2022 fiscal year, a rise of 43.9% compared to last year.
Exports rose at a slower pace of 32.9%, while remittances from Bangladeshis living abroad — a key source of foreign exchange — dropped about 20% in the first four months of 2022 from the year before, to $7 billion.
Foreign reserves will go down to a dangerous level
Muinul Islam, a Bangladeshi economist and former professor at Chittagong University, fears that the trade deficit could grow in the coming years as imports are increasing faster than exports.
“Our imports are set to reach $85 billion by this year, while exports won’t be more than $50 billion. And, the trade deficit of $35 billion can’t be bridged by remittances alone,” Islam told DW, adding: “We will have to live with around a $10 billion shortfall this year.”
Bangladesh’s garment sector won’t last long
The expert also pointed out that Bangladesh’s foreign exchange reserves have fallen from $48 billion to $42 billion over the past eight months. He is worried that they may drop further in the coming months, likely down another $4 billion.
“If the trend of more imports against exports continues and we fail to minimize the gap with the remittances, our foreign reserves will go down to a dangerous level in the next three to four years,” he stressed, underlining that this would lead to a significant devaluation of the nation’s currency against the US dollar.
“For a long time, Bangladesh has been heavily reliant on China for military weaponry since its independence in 1971. However, the situation has changed. Bangladesh is now purchasing military equipment from several countries,” A L M Fazlur Rahman, former director-general of the Bangladesh Border Guard, told Global Defense Corp.
According to official sources, the country launched a megaproject in 2009, dubbed Forces Goal 2030, to modernize its military forces by 2030.
China is trying to emerge as a critical defense exporter to certain South Asian and Southeast Asian countries in India’s neighbourhood. Still, its supplies to the Bangladesh armed forces have raised concerns over the quality and longevity of the products.
The quality of Chinese supplied platforms for the Bangladesh military has also come under the scanner, said people in the know. Over the past decade, $2.59 billion was reportedly spent by Bangladesh on acquiring Chinese military equipment. Bangladesh also bought several dozens of armored vehicles from vehicles and some small arms under Russia’s billion-dollar loan. Qatar based Al Jazeera newspaper blew the lid on the Bangladesh military’s illicit transaction with European banks.
Massive loans for ‘white elephant’ projects?
Bangladesh, like Sri Lanka, has also taken on foreign loans in recent years to fund what critics call “white elephant” projects, which are expensive but totally unprofitable.
These “unnecessary projects” could cause trouble when the time comes to repay the debts, Islam said.
Bangladesh government has created a long list of civil projects and handed over the Bangladesh military to manage those projects leading to high corruption and misdemeanour in the military’s rank. The South Asian country has a history of military coup and ousting the ruling party from power. Hasina government adopted a tactic to keep the military busy with UN peacekeeping missions and civil projects. Bangladesh’s military is also embezzling billions of dollars to these shoddy white elephant projects in Bangladesh.
“We have taken a loan of $12 billion from Russia for a nuclear power plant which has a production capacity of just 2,400 megawatts. We can repay the debt in 20 years, but the instalments will be $565 million per year from 2025,” he pointed out. “It’s the worst kind of a white elephant project.”
Bangladesh military also has a stake in the nuclear powerplant project. Russia would like to holt the nuclear powerplant project in Bangladesh as Russia comes under crippling international sanctions. Bangladesh has no means to repay any loans to Russia as Russia is cut off from the SWIFT payment system.
In total, the country will likely have to repay $4 billion per year from 2024 as instalments for foreign loans, Islam estimated.
“I fear Bangladesh won’t be able to repay those loans at that time because of the shortage of income from the mega projects,” he stressed.
Prime Minister Sheikh Hasina’s government has taken several steps to slash spending and save foreign currency reserves
Nazneen Ahmed, the Bangladesh economist at the United Nations Development Programme (UNDP) office in Dhaka, said that the government must ensure the projects are completed without additional cost and delay.
“We have to finish the mega projects carefully. There is no room for negligence and corruption. Those projects should neither be delayed, nor the existing budget is increased,” she said, adding: “If we can finish them on time, only then will we be able to repay the loans we have taken for them.”
“Bangladesh’s last election was not good. It was a fraudulent one. Another national election is due in the next two years. So the political situation will remain tense anyway. The economic uncertainty could fuel it even more.”
While the experts don’t see any imminent economic crisis, they believe that good governance, anti-corruption drives and financial management are needed to ensure Bangladesh doesn’t end up facing a situation that Sri Lanka now finds itself in.
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