Bangladesh’s Emergent External Borrowing Scenario

Abstract Bangladesh’s track record in terms of external debt carrying capacity has been quite comfortable till recent times. According to the World Bank ( WB ) and International Monetary Fund ( IMF ) framework regarding the capacity to carry debt, Bangladesh is considered to be a “moderate country”. However, in very recent times, the scenario has undergone significant changes, for several reasons. These include a higher pace of external borrowing used to underwrite public and publicly guaranteed projects, high interest rates consequent to Bangladesh’s middle-income graduation, weak debt management and corruption, and the over costing of some foreign-funded projects. Against this backdrop, the paper employs the Engle-Granger co-integration technique to estimate an external debt threshold for Bangladesh and compares it with the IMF-WB ’s Low-Income Country Debt Sustainability Framework. The findings indicate that the debt carrying capacity has weakened in recent years. The paper proposes a number of recommendations towards a sound external debt management strategy for Bangladesh.