Published in The New Nation on Wednesday, 18 July 2018
Mega projects on costly foreign loans, Economic pains to linger
Economists on Tuesday expressed serious concern over costly foreign borrowing on implementing first track mega projects saying it would push up external debts to highly risky level inviting long-term economic pains.
The present government has undertaken a number of mega projects involving large amount of money, based on mainly commercial borrowing.
A few examples of such projects are Padma Multipurpose Bridge (Tk 30,000 crore), Rooppur Nuclear Power Plant (Tk 101,000 crore), Rampal Power Station (Tk 16,000 crore), Karnaphuli Tunnel (Tk 5,600 crore), Matarbari Power Plant (Tk 50,000 crore), Dhaka Metro Rail Project (Tk 22,000 crore), Payra Deep Sea Port (Tk 160,000 crore), Padma Bridge Railway Link (Tk 34,988 crore), Payra Power Plant (Tk 16,000 crore), Dhaka Mass Rapid Transport (Tk 21,985 crore) and Dohazari-Ramu-Cox’s Bazar-Ghundum Railway Link (Tk 18,034 crore).
Eight of the projects are under implementation with an estimated cost of Tk 2,77,300 crore. Of the total cost, about 70 per cent (Tk 1,93,000 crore) will be financed from foreign loans (Japan, Russia, China and India) with higher interest rates and lower grace period.
Of them, Tk 95,000 crore would be borrowed for Rooppur Nuclear Power Plant, Tk 16,500 crore for Metro Rail, Tk 29,000 crore for Matarbari Power Plant, Tk 24,725 crore for Padma Bridge Railway Link and Tk 14,500 crore for Rampal Power Plant.
All the projects are running behind their respective execution schedule due to tardiness in their implementation process.
“It’s a real concern that the government has taken multi-billion dollar costly loans from foreign sources on a number of big infrastructure projects. It has raised the debt risk and debt servicing liabilities,” Dr. Zahid Hussain, Lead economist of World Bank’s Dhaka office, told The New Nation yesterday.
He said the indiscriminate foreign borrowing would lead the country into debt-trap and thereby it would invite long-term economic pains.
“Most mega projects are running behind the schedule and the question remains whether these projects would generate the growth or economic dividends to outweigh the cost. They may only raise the debt servicing liabilities if they are not completed timely,” Dr. Zahid Hussain said.
Bangladesh’s outstanding external debt stood at US$ 28.56 billion at the end of the fiscal year 2016-17. The government made debt service payment of US$ 1.14 billion against foreign loans during the period, according to Bangladesh Economic Review.
“The costly loans will help swell the public debt further and the economic consequences will further grow when the nation has to pay back of these loans,” Dr Debapriya Bhattacharya, Distinguished Fellow, Center for Policy Dialogue (CPD), told The New Nation.
He said there is nothing wrong with foreign debts as long as the rate of return on the debt financed-investment is higher than the costs of borrowing. But the concern is that the cost and time overruns of mega projects are eating up economic benefits. It also imposes huge burden on the economy as well as people of the country.
When asked, Dr Debapriya Bhattacharya said the government could feel good for the mega projects shifting the bad consequences of the external debt to the next generation.
“High cost of external borrowing has increased the country’s exposure to risky debt. The real danger is if the debt ratio rises fast, the government would either increase taxes or borrow huge amount from banks thus raising the interest rates. It will inevitably produce macroeconomic uncertainty,” Dr Ahsan H Mansur, Executive Director of Policy Research Institute (PRI) told The New Nation.
He said the government’s move towards non-concessional borrowing could also dent the country’s debt servicing affordability at higher interest payment. Furthermore, high external borrowing by the government on mega projects could trigger debt crisis if they are not completed timely.
Referring to Pakistan and Sri Lanka’s disastrous experience on the costly Chinese loans, he said, these countries have been compromised their sovereignty by failing to pay back the loans, at it piles up annually.
Dr Ahsan H Mansur urged the government to avail only concessional foreign loans to implement mega projects in order to avert future economic shock.