Bangladesh’s finance minister has warned that developing countries should think twice before taking out more loans through China’s Belt and Road Initiative as global inflation and a slowdown in growth add to the tensions in indebted emerging markets.
AHM Mustafa Kamal also said Beijing needed to be more rigorous in evaluating its loans amid concerns that poor lending decisions could push countries into debt distress. He pointed to Sri Lanka, where Chinese-backed infrastructure projects that failed to generate returns had exacerbated a severe economic crisis.
“Whatever the situation [that] is happening all over the world, everyone will think twice about accepting this project,” he said in an interview, referring to BRI. “Everyone is blaming China. China cannot disagree. It’s 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 feel that the Chinese authorities are not dealing with this particular aspect, which is very, very important”.
Bangladesh last month became the latest country in Asia to approach the IMF for financing as rising commodity prices after the large-scale invasion of Ukraine by Russia weighed on its foreign reserves. The country, a participant in China’s BRI, owes about $4 billion, or 6 percent of its total foreign debt, to Beijing.
Kamal said Bangladesh wanted a first IMF tranche of $1.5 billion as part of a total package of $4.5 billion, which would include funding to help it finance climate change resilience projects and strengthen your budget.
The fund said the total amount of possible loans for Bangladesh had not yet been negotiated.
Bangladesh is also seeking up to $4 billion more in total from a range of other multilateral and bilateral lenders, including the World Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank and the Japan International Cooperation, Kamal said. 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 to meet with officials, including Prime Minister Sheikh Hasina. In a statement, China called itself “Bangladesh’s most reliable long-term strategic partner” and said the pair agreed to strengthen “infrastructure cooperation.”
The economic impact of the Covid-19 pandemic, as well as rising global food and fuel prices amid the Ukraine war, has put many developing countries under strain and some are struggling to pay their foreign debt
Sri Lanka, which defaulted on its sovereign debt in May, is in talks with the IMF for an emergency bailout. Pakistan, whose foreign reserves have fallen to just enough for a month and a half of imports, last month reached a preliminary agreement with the fund to release $1.3 billion as part of a package of existing $7 billion assistance.
Bangladesh has been hit hard by rising energy import bills, with fuel shortages forcing daily power cuts of several hours. Its foreign reserves have also fallen to less than $40 billion from more than $45 billion a year ago.
However, analysts say the country’s strong export sector, particularly the garment trade, has helped buffer it from recent global shocks and its reserves are still enough for about five months of imports, providing the country with some cushion.
This meant that although “everyone is suffering [and] we are also under pressure,” Kamal said. “There’s no way to think about a situation like this.”
Bangladesh had total external debts of $62 billion in 2021, according to the IMF, with most owed to multilateral lenders such as the World Bank. The country owes $9 billion, or 15 percent, to state lenders in Japan, its biggest bilateral creditor, followed by China.
Bangladesh’s economy grew rapidly in recent decades, rising from one of the poorest in the region after its independence war in 1971 to a per capita income of $2,500, higher than India and the Pakistan.
But climate change poses a major threat, with the low-lying country of 160 million 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 would help provide long-term climate change-related financing as part of Bangladesh’s lending program. “Unprecedented global shocks present countries like Bangladesh with significant uncertainties,” he said.
Lack of infrastructure also continues to limit growth. The government inaugurated the $3.6 billion Padma Bridge near Dhaka in June. The project was built by China but was financed domestically after international lenders withdrew funding over a corruption scandal, although the allegations were never proven. But the government has responded to the economic downturn by canceling a number of planned infrastructure improvements, including investments in building a 5G network and improving roads.
“Projects that are essential and are in the pipeline and will pay as quickly as possible, we just take care of them,” Kamal said. “To other projects, we say, no, thank you.”