Since the start of the year, a severe debt crisis is intensifying across the developing low and middle-income countries. According to United Nation Development Programme’s report on international debt relief, nearly 54 countries are now facing serious debt problems with rise in interest rates increasing borrowing costs, decline in fiscal space which are pushing the countries into more debt burden.
While a number of South Asian countries including Sri Lanka, Afghanistan, Pakistan are listed as in distress, high risk of debt distress as well as vulnerable to debt crisis, Bangladesh has successfully managed to maintain its strong control over debt repayment and remains at a low risk of external and public debt distress with its effective debt management strategies.
In a recent research based on credit ratings, debt sustainability ratings, and sovereign bond spreads, UNDP has identified that the poorest countries in the world are at a risk of severe debt burden. Currently, nearly one third of all developing economies with a credit rating at are now either ‘substantial risk, extremely speculative or in default’. At least 54 developing economies are experiencing debt burden. Although they represent only 3% of global economy and 18% of population altogether, it is home to more than 50% of people live in extreme poverty. Furthermore, it includes 28 of the world’s top 50 most climate vulnerable countries who are in need of urgent debt relief as a result of cascading global crises.
The developing economies were struggling with debt distress long before the Covid-19. Though major debt relief initiatives were taken in response to pandemic contributed significantly to reduce debt-burdens and improve development prospects, these were not adequate to avert the surge of debt trouble.
Bangladesh: A success story
While the countries around the world are struggling with debt crisis, Bangladesh is performing as one of the stable economies in the region. Though the pandemic induced economic slow-down together with rising global inflation rate, dollar crisis, fuel and food price hike due to Russia-Ukraine war, have adversely affect the economic growth, Bangladesh foreign exchange reserves now stand at $35.98 billion which are in a stronger position than those in number of other developing countries in South Asia.
For instance, Pakistan is among the 54 debt vulnerable countries identified by UNDP, Afghanistan is also enlisted as in high risk of debt distress, and Sri Lanka has declared as bankrupt.
Bangladesh is also exemplary for its successful debt policies. Unlike many other developing countries, Bangladesh has also strong hold over its debt repayment. As debt management strategies, Bangladesh relies on diverse sources for external debt with low interest and always on time on repaying the debt. The external and Even India's forex exchange reserves has also declined by $3.8 billion and hit the lowest since July 2020.public debt to GDP ratio of Bangladesh account for 14% and 6% respectively, which are well below the danger threshold as stated by the International Monetary Fund (IMF).
However, as the World Bank and IMF warned about a looming global economic recession ahead due to rising interest rates, global inflation as well as declining worldwide economic growth, effective debt restructuring policies prescribed by UNDP should be taken into consideration by the international community. Though Bangladesh still has balance of payment under its control, the UNDP proposed debt restructuring would be favourable for the fastest economies like Bangladesh to deal with the risk of possible global recession.
Tahmina Haque is currently pursuing her PhD at MacCormack Graduate School. Her research interests include South Asia, Governance and Development, Security and Gender Issue