Bangladesh’s Finance Minister AHM Mustafa Kamal has warned that countries, especially developing nations, must think twice before taking more loans through China’s Belt and Road Initiative.
His statement comes at a time of global inflation and slowing growth which are acting as strains on indebted emerging markets.
He also thinks that Beijing needs to be more thorough in evaluating its loans because there are concerns that poor lending decisions have pushed some countries into debt distress. It needs to "make a thorough study" before lending to a project, he said.
He specifically pointed to Sri Lanka, where Chinese-backed infrastructure projects failed to generate returns which played a crucial role in the severe economic crisis that the island nation went through.
“Whatever the situation [that] is going on worldwide, everybody will be thinking twice to agree to this project. Everybody is blaming China. China cannot disagree. It’s their responsibility,” he said in an interview, referring to the Belt and Road Initiative.
In his view, the crisis in Sri Lanka highlights that China has not been rigorous enough in deciding which projects to support, it has not considered which projects will be feasible in the long term by generating enough revenues.
“After Sri Lanka . . . we felt that Chinese authorities are not taking care of this particular aspect, which is very, very important," he said.
Last month, Bangladesh had to approach the IMF as commodity prices have risen after the war in Ukraine and the surging commodity prices are weighing on Bangladesh's foreign reserves.
Bangladesh is a part of China's Belt and Road Initiative. Dhaka owes 6 per cent of its total foreign debt to Beijing, which is around $4 billion.
"Whichever projects are essential and are in process and will pay off as fast as possible, we're only taking care of those. To other projects, we're saying, no thank you," said FM Kamal.
According to a report from FT, Bangladesh is seeking a first instalment from the IMF of $1.5billion, as part of a total package worth $4.5billion.
"This amount would include a finical line to help it fund climate change resilience projects and buttress its budget," reads the report.
The Finance Minister's comments came as China's Foreign Minister Wang Yi visited Bangladesh over the weekend for meetings 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 "co-operation in infrastructure", as per reports in the local media.
The Finance Minister Kamal clarified that despite his country approaching the IMF for help, Dhaka is not in a situation like Lanka and according to him, not at the risk of defaulting.
"There is no way to even think of a situation like that," he says.
According to the IMF, Bangladesh had total foreign debts of $62 billion in 2021. The majority of the debt is owed to multilateral lenders such as the World Bank.
Bangladesh is struggling due to rising energy import bill, with fuel shortages forcing daily, multi-hour power cuts. Dhaka's foreign reserves have also fallen to less than $40 billion from more than $45 billion a year ago.
To Dhaka's relief, the country’s strong export sector has been a boon.
Its garment trade has helped "shield it from the recent global shocks and its reserves are still enough for about five months’ worth of imports, providing the country with some cushioning."
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