Bangladesh’s finance minister has warned developing countries should think twice before taking out more loans through China’s Belt and Road initiative as global inflation and slowing growth add to tensions in indebted emerging markets.
AHM Mustafa Kamal also said Beijing needed to be more rigorous in evaluating its loans, fearing bad lending decisions could push countries into debt distress. He pointed to Sri Lanka, where Chinese-backed infrastructure projects that failed to generate returns have exacerbated a severe economic crisis.
“Whatever the situation [that] is happening all over the world, everyone will think twice before accepting this project,” he said in an interview, referring to the BRI. “Everyone blames China. China cannot disagree. It is their responsibility. »
He said the crisis in Sri Lanka highlighted that China had not been rigorous enough in deciding which projects to support. He must “do a thorough study” before lending to a project, he said. “After Sri Lanka. . . we felt that the Chinese authorities do not take care of this particular aspect, which is very, very important.
Bangladesh last month became the latest Asian country to seek IMF financing as soaring commodity prices after Russia’s large-scale invasion of Ukraine weighed on its foreign exchange reserves. The country, which participates in China’s BRI, owes Beijing about $4 billion, or 6% of its total external debt.
Kamal said Bangladesh wanted an initial IMF disbursement of $1.5 billion as part of a total package of $4.5 billion, which would include funding to help it finance resilience projects in the climate change and strengthen its budget.
The fund said the full amount of potential loans for Bangladesh had yet to be negotiated.
Bangladesh is also seeking up to an additional $4 billion in total from various other multilateral and bilateral lenders, including the World Bank, Asian Development Bank, Asian Infrastructure Investment Bank and Japan Cooperation Agency. international,” said Kamal. He added that he was optimistic that the country would get loans from them.
His comments came as Chinese Foreign Minister Wang Yi visited Bangladesh over the weekend for meetings with officials including Prime Minister Sheikh Hasina. In a statement, China called itself “Bangladesh’s most reliable long-term strategic partner” and said the couple had agreed to strengthen “cooperation in infrastructure”.
The economic blow of the Covid-19 pandemic, as well as soaring global food and fuel prices amid the war in Ukraine, have strained many developing countries and some are struggling to repay their debt. external debt.
Sri Lanka, which defaulted on its sovereign debt in May, is in negotiations with the IMF for an emergency rescue plan. Pakistan, whose foreign exchange reserves have fallen to a level sufficient for just a month and a half of imports, reached a preliminary agreement with the fund last month to release $1.3 billion under a program $7 billion in existing aid package.
Bangladesh has been hit hard by a rising energy import bill, with fuel shortages forcing hours-long daily power outages. Its foreign exchange reserves also fell to less than $40 billion from more than $45 billion a year ago.
However, analysts say the country’s strong export sector, notably its apparel trade, has helped cushion it from recent global shocks and its reserves are still sufficient for around five months of imports, providing the country some cushioning.
This meant that although “everyone suffers [and] we are also under pressure,” Bangladesh was not in danger of defaulting like Sri Lanka, Kamal said. “There’s no way to think about a situation like this.”
Bangladesh had a total external debt of $62 billion in 2021, according to the IMF, with the majority owed to multilateral lenders such as the World Bank. The country owes $9 billion, or 15%, to official lenders from Japan, its largest bilateral creditor, followed by China.
Bangladesh’s economy has grown rapidly in recent decades, going from one of the poorest in the region after its independence war in 1971 to a per capita income of $2,500, higher than that of the India and Pakistan.
But climate change poses a significant threat, with the 160 million-high country vulnerable to rising sea levels, erratic monsoon rains and flooding.
The IMF said in a statement this month that its new Resilience and Sustainability Trust Fund would help provide long-term climate change financing under Bangladesh’s lending program. “Unprecedented global shocks present countries like Bangladesh with significant uncertainties,” he said.
Lack of infrastructure also continues to hamper growth. The government inaugurated the $3.6 billion Padma Bridge near Dhaka in June. The project was built in China but financed domestically after international lenders withdrew funding following a corruption scandal, although the allegations were never proven. But the government responded to the economic downturn by canceling a series of planned infrastructure upgrades, including investments in building a 5G network and upgrading highways.
“Whatever essential and ongoing projects are that will bear fruit as soon as possible, we only take care of those,” Kamal said. “To other projects, we say, no thank you.”