Bangladesh : Requests for Disbursement Under the Rapid Credit Facility and Purchase Under the Rapid Financing Instrument—Debt Sustainability Analysis
Author: International Monetary Fund. Asia and Pacific Dept
Publication Date:
03 Jun 2020
eISBN:
9781513546407
Language:
English
Keywords:
ISCR; CR; financing; emergency financing request; IMF lending tracker; GDP deflator; protection expenditure; working capital; cash transfer programs; dynamics equation; Commercial banks; COVID-19; Credit; Global; Middle East; debt indicator; public debt-to-GDP ratio; sustainability framework; debt coverage; CAD deterioration; Public and publicly-guaranteed external debt; Debt sustainability analysis; Stress testing
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Requests for Disbursement under the Rapid Credit Facility and Purchase under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Bangladesh

Abstract

Requests for Disbursement under the Rapid Credit Facility and Purchase under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Bangladesh

Bangladesh: Joint Fund-Bank Debt Sustainability Analysis1

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Debt coverage includes debt guaranteed by the government.

The composite indicator for Bangladesh is 3.06 based on the October 2019 WEO and suggests a strong debt-carrying capacity.

The authorities do not plan to apply for the Debt Service Suspension Initiative supported by the G20 and Paris Club at this time. The initiative provides a time-bound suspension of official bilateral debt service payments to IDA-eligible and least developed countries.

Bangladesh remains at a low risk of external and a low overall risk of debt distress. This assessment stands despite the economic shock caused by COVID-19. External debt indicators are below their thresholds and the public debt level is below the benchmark under the baseline and stress test scenarios. Risks to the baseline are tilted downward. Under the baseline, the impact from COVID-19 is concentrated in Q4 of FY202 and Q1 of FY21 with some recovery in Q2 of FY21 and growth gradually resumes thereafter though output remains below pre-pandemic projections. Should the impact from COVID-19 be more protracted, debt indicators will worsen but are expected to remain below thresholds. Future infrastructure projects will be financed with external debt, but favorable debt dynamics in the medium-term keep PPG external debt stable. The authorities should continue to increase tax revenues and seek concessional financing to the extent possible. Staff commend recent reforms to the sale of National Savings Certificates (NSCs) and advise further reform to pricing so that the domestic debt market has more space to develop.

Figure 1.
Figure 1.

Bangladesh: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2020–2030

Citation: IMF Staff Country Reports 2020, 187; 10.5089/9781513546407.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Figure 2.
Figure 2.

Bangladesh: Indicators of Public Debt Under Alternative Scenarios, 2020–2030

Citation: IMF Staff Country Reports 2020, 187; 10.5089/9781513546407.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Figure 3.
Figure 3.

Bangladesh: Drivers of Debt Dynamics – Baseline Scenario

Citation: IMF Staff Country Reports 2020, 187; 10.5089/9781513546407.002.A002

1/ Difference between anticipated and actual contributions on debt ratios.2/ Distribution across LICs for which LIC DSAs were produced.3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation.
Figure 4.
Figure 4.

Bangladesh: Realism Tools

Citation: IMF Staff Country Reports 2020, 187; 10.5089/9781513546407.002.A002

Table 1.

Bangladesh: External Debt Sustainability Framework, Baseline Scenario, 2017–2040 1/

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.

Includes both public and private sector external debt.

2/ Derived as [r – g – ρ(1 +g)]/(1 + g + ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.4/ Current-year interest payments divided by previous period debt stock.5/ Defined as grants, concessional loans, and debt relief.6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).7/ Assumes that PV of private sector debt is equivalent to its face value.8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 2.

Bangladesh: Public Sector Debt Sustainability Framework, Baseline Scenario, 2017–2040

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.1/ Coverage of debt: The central government, central bank, government-guaranteed debt . Definition of external debt is Currency-based.2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections.3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt.4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows.5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question.6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 3.

Bangladesh: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020–2030

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the threshold.

Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Includes official and private transfers and FDI.

Table 4.

Bangladesh: Sensitivity Analysis for Key Indicators of Public Debt, 2020–2030

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the benchmark.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

1

This joint World Bank/IMF Debt Sustainability Analysis (DSA) has been prepared in the context of the 2020 request for emergency financing from the Fund. The macroeconomic framework underlying this DSA update is the same as that included in the staff report of the 2020 RFI/RCF request which reflects recent global and domestic developments. The current macroeconomic framework reflects currently available information. However, updates with respect to the economic impact and policy response to the COVID-19 crisis are rapidly evolving and risks are heavily tilted to the downside.

2

The fiscal year begins in July and ends in June. The years in tables and charts refer to fiscal years.

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Cover IMF Staff Country Reports
Bangladesh: Requests for Disbursement under the Rapid Credit Facility and Purchase under the Rapid Financing Instrument-Press Release; Staff Report; and Statement by the Executive Director for Bangladesh
Author: International Monetary Fund. Asia and Pacific Dept
Volume/Issue:
Volume 2020: Issue 187
Publisher:
International Monetary Fund
ISBN:
9781513546407
ISSN:
1934-7685
Pages:
51
DOI:
https://doi.org/10.5089/9781513546407.002
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    Bangladesh: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2020–2030

  • View in gallery

    Bangladesh: Indicators of Public Debt Under Alternative Scenarios, 2020–2030

  • View in gallery

    Bangladesh: Drivers of Debt Dynamics – Baseline Scenario

  • View in gallery

    Bangladesh: Realism Tools

Bangladesh: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2020–2030

Bangladesh: Indicators of Public Debt Under Alternative Scenarios, 2020–2030

Bangladesh: Drivers of Debt Dynamics – Baseline Scenario

Bangladesh: Realism Tools