Bangladesh moves towards debt trap

Bangla Press Desk:  Researchers warned that Bangladesh is steadily moving towards a debt-risk trap because of inflated costs, corruption and weak governance in large infrastructure projects undertaken in the name of development. They said borrowing does not create the core problem; rather, uncontrolled spending, opaque contracts and a lack of accountability place long-term pressure on the economy.

Speakers presented the findings at a roundtable titled “Public Debt and Governance” at the CIRDAP auditorium in the capital on Monday. An education and research institution under the University of London conducted the study with support from an international charity and local research organisation Change Initiative.The study said Bangladesh’s external debt stood at $23.5 billion in 2009. By 2025, the figure rose to nearly $112 billion, marking a 377% increase over 16 years. Interest payments also climbed sharply during the same period.

The government now spends one-fifth of its revenue on interest payments alone, leaving less fiscal space for development expenditure.

Researchers analysed 42 major projects in transport, power, ports, aviation and industrial zones between 2009 and 2025. They found that 29 projects recorded an average cost escalation of 70.3%. In many cases, corruption, inefficiency and collusion consumed between 23 percent and 40 percent of total project costs.

Economist Prof Mushtaq H Khan said even a slight increase in contract prices can create a massive financial burden over time. He noted that purchasing electricity at a few cents higher per unit can generate billions of dollars in additional liabilities over 20 to 25 years. He identified non-competitive contracts, political influence and weak accountability as the major risks rather than the volume of debt alone.

The study highlighted two types of failure in infrastructure projects. In some cases, authorities built projects properly but fixed prices at excessively high levels, making cost recovery difficult. In other cases, weak planning and flawed design prevented projects from delivering expected benefits. As a result, income remains low while loan repayments continue.

Power sector pressure

The study described the power sector as the most vulnerable. It projected that capacity payments could reach Tk 38,000 crore in 2025. The government must pay these charges regardless of actual electricity use. High-cost contracts force the government to provide nearly $4.9 billion in annual subsidies to keep retail electricity prices affordable. If authorities withdraw subsidies, electricity tariffs could rise by as much as 86%.

Between 2011 and 2024, payments to power producers increased 11-fold, while capacity charges rose 20-fold. Electricity generation, however, increased only fourfold. Many plants remain idle because of fuel shortages, yet the government continues payments under contractual obligations.

Lessons from Sri Lanka

Researchers cited Sri Lanka’s 2022 financial crisis as a cautionary example. The country allocated about 65% of its external debt to infrastructure, but many projects failed to generate expected returns. Several projects undertaken during former President Mahinda Rajapaksa’s tenure later became non-functional. Weak revenue growth intensified debt-servicing pressure and pushed the country into a severe crisis.

Researchers said Bangladesh faces similar risks. They estimated the adjusted debt-to-GDP ratio at 42%, compared with the previously considered safe threshold of 33%. If current trends continue, the ratio could reach between 65% and 70% by 2030.

Call for accountability

Speakers at the roundtable stressed the need for effective accountability alongside transparency. They recommended publishing open data in tender processes, verifying land acquisition and design readiness before project approval, linking payments to performance and disclosing the names of responsible officials.

Zakir Hossain Khan of Change Initiative said Bangladesh could move quickly towards financial insolvency if it continues to provide nearly $5 billion annually in subsidies to a corruption-ridden power and energy sector after external debt surpassed $100 billion. He alleged that masterminds of corruption hijacked the power and energy master plan.

UNDP Country Economic Adviser Wais Paré said rising debt reflects growing demands for infrastructure and social protection. He warned that policymakers must align financing with policy and ensure that borrowing translates into genuine and sustainable development through coordinated planning and strong institutional capacity.

FCDO Governance Adviser Emma Wind said Bangladesh must prioritise power sector reform as it approaches graduation from least developed country status. She said authorities can strengthen procurement processes by using IMF governance diagnostics and donor expertise to secure a financially stable and energy-secure future.

BPDB Director Jahangir Alam Molla said the repeal of special laws and the introduction of competitive bidding reduced solar tariffs from 10 cents to between 5 and 8 cents. He said authorities are addressing structural challenges by prioritising land availability and energy diversification.

BSREA President Mostafa Al Mahmud urged the government to stop spending billions of dollars on imports when solar electricity costs less than five cents. He said expanding renewable energy through grid-adjacent land is no longer optional but essential for Bangladesh’s survival.

Source: daily Sun

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