News
Bangladesh raises Chinese ‘Belt and Road’ loans as cautionary tale
View(s):By Kapila Bandara
Citing the economic devastation in Sri Lanka after piling up unpayable foreign debt including that from old friend China, the official handling Bangladesh’s finances says developing countries will “be thinking twice’’, about loans from the communist state’s Belt and Road Initiative projects.
“Whatever the situation (that) is going on worldwide, everybody will be thinking twice to agree to (BRI loans),’’ Finance Minister Mr A H M Mustafa Kamal has told London’s Financial Times. “Everybody is blaming China. China cannot disagree. It is their responsibility.’’
The FT reports that Bangladesh owes about US$4 billion, or 4% of its foreign debt to China.
Bangladesh, a long-time friend of Sri Lanka, has been trying to fend off comparisons with the bankrupt island creditor, now that its own economy is sliding, and there are fears of an implosion, regardless of foreign exchange reserves of US$39 billion, which tumbled from US$45.5b compared with more than a year ago.
Some of Dhaka’s projects are also factors in being compared with Sri Lanka. For 14 years, the Awami League party, headed by Prime Minister Sheikh Hasina’s family, has been in power. Some family members are entwined in the state machinery, like it was in Sri Lanka.
Bangladesh has also extended its hand to the IMF seeking US$1.5b out of US$4.5b now being sought. It is struggling with fiscal and current account deficits, just like Sri Lanka. The banking sector has weakened and bad loans have swelled steadily. The central bank struggled to defend the taka versus the US dollar at about 86.
The IMF has said it is “ready to support Bangladesh, and the staff will engage with the authorities on programme design’’.
While unfavourable comparisons with Sri Lanka gain traction, Premier Hasina was quoted in reports this week as insisting that: “Bangladesh will never become Sri Lanka, it won’t be. We think in a pragmatic way before taking any development project (and so) the country will continue to move ahead overcoming all global challenges.’’
China’s flagship infrastructure plan has come under scrutiny globally for corruption, debt, and its geopolitical machinations. China has denied such accusations.
Countries in Asia continued to receive the largest share of BRI investments or about 35% in 2021, based on a half-year report recently by the Fudan University, in Shanghai. Investments into European BRI countries dived by 84% compared with the first six months of 2020.
Bangladesh’s Mr Kamal told the UK FT that China needs to be more rigorous in evaluating loans amid concern that bad decisions risked pushing countries into debt distress.
He cited Sri Lanka, where unviable BRI projects had aggravated an economic meltdown.
He told the FT, that China had not been rigorous enough in deciding which projects to support. China needs to “make a thorough study’’, before lending to a project.
“After Sri Lanka … we felt that Chinese authorities are not taking care of this particular aspect, which is very, very important.’’
Reuters has reported that Bangladesh had sought talks on a new loan under the global creditor’s Resilience and Sustainability Trust. Such funds are capped at 150% of a country’s quota or, in Bangladesh’s case, the maximum of US$1b.
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