Bangladesh’s finance minister warned that developing countries should think twice before taking more loans through China’s Belt and Road Initiative as global inflation and slowing growth add to tensions. on indebted emerging markets.
AHM Mustafa Kamal also said that Beijing needed to be more rigorous in evaluating its loans amid concerns that poor lending decisions could push countries into a debt crisis. 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] it’s 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 his responsability”.
He said the Sri Lankan crisis highlighted that China had not been rigorous enough in deciding which projects to support. They need to “do a thorough study” before lending to a project, she 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 seek IMF financing as rising commodity prices following Russia’s invasion of Ukraine hit its foreign exchange reserves. The country, which participates in China’s BRI, owes about $4 billion, or 6 percent of its total foreign debt, to Beijing.
Kamal said the country wanted a first installment from the IMF of $1.5 billion as part of a total package worth $4.5 billion, which would include financing to help it finance climate change resilience projects and bolster its budget.
The fund said the full amount of potential loans for Bangladesh had not yet been negotiated.
Bangladesh is also seeking up to $4 billion more in total from a variety of other multilateral and bilateral lenders, including the World Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank and the Japan International Cooperation Agency, he 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 to meet officials including Prime Minister Sheikh Hasina. In a statement, China called itself “Bangladesh’s most reliable long-term strategic partner” and said the two 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 pressure and some are struggling to pay off their debt. external.
Sri Lanka, which defaulted on its sovereign debt in May, is in talks with the IMF for an emergency bailout. Pakistan, whose foreign exchange reserves have fallen to the level sufficient for just a month and a half’s worth of imports, last month reached a preliminary agreement with the fund to release $1.3bn as part of an existing $7bn aid package. millions.
Bangladesh has been hit hard by a rising power import bill, with fuel shortages forcing daily multi-hour power cuts. Its foreign exchange 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 its apparel trade, has helped cushion it from recent global shocks and its reserves are still sufficient for about five months’ worth of imports, providing the country with something of protection.
This meant that although “everyone is suffering [and] we are also under pressure,” Bangladesh was not at risk of defaulting like Sri Lanka, Kamal said, adding: “There is no way to think about a situation like that.”
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 percent, to state lenders from Japan, its largest bilateral creditor, followed by China.
Bangladesh’s economy grew rapidly in recent decades from one of the poorest in the region after its war of independence in 1971 to a per capita income of $2,500, higher than that of India and Pakistan.
But climate change poses a significant threat, with the 160m low-lying 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 would help provide long-term financing related to climate change as part of the Bangladesh loan program. “Unprecedented global shocks present countries like Bangladesh with significant uncertainties,” he said.
Lack of infrastructure also continues to limit growth. In June, the government opened the $3.6 billion Padma Bridge near Dhaka. The project was built in China but financed domestically after international lenders withdrew funds over a corruption scandal, though 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 roads.
“Whatever projects are that are essential and are in the works and will be paid for as quickly as possible, we only deal with those,” Kamal said. “To other projects, we say, no, thank you.”