By TON Bangladesh

The International Monetary Fund (IMF)’s willingness to support Bangladesh’s appeal for a $4.5 billion bailout package over the next three years endorses that the country’s economy is fronting a grave crisis.  It is the third country in the region, after Sri Lanka and Pakistan that approached the IMF in current months. While the economic crises in Pakistan and Sri Lanka were widely identified in worldwide media.

Bangladesh’s situation came to light despite the fact that the Bangladeshi government’s frequent rejection of any economic disaster. Bangladesh current Prime Minister Government for years hyped the economic achievement of the country and recently celebrated the opening of Bangladesh’s largest bridge as a sign of its self-reliance. The government assertions that its request for “budget support,” an unhindered loan with low interest which lets it to use the money as it wishes, is a precautionary measure. However, indeed it shows that the economy is  in trouble.

Dhaka’s hunt for financial support is not limited to the IMF. Also requesting from the World Bank a one-billion-dollar loan, an estimated $2.5-3 billion have been asked from several multilateral agencies and donor nations such as the Japan International Cooperation Agency, or JICA in this year.

Additionally, seeing that ongoing austerity actions including power cuts, partial use of foreign currency, and fuel rationing are yet to make any major dent in the crisis. The government’s assertion that the country will weather decreasing foreign exchange funds, a rising trade deficit, record inflation, daily depreciation of the local currency, and a deep energy crisis is doubtful. As the IMF and other multilateral agencies open their purses to Bangladesh, it is also imperative to understand how the country arrived here.

Dhaka shows everyone to believe that the economic fall down from the COVID-19 pandemic and the global influence of the Ukraine-Russia war are to be blamed for its current predicament, but this only says a part of the story. The following figures display a far more troublesome image.

Bangladesh received at least $1.7 billion in loans from multilateral agencies by June 2020, and by October 2021 it had borrowed at least three billion dollars from development partners as budget support to combat the adverse impacts of the pandemic. It is reported that budget support received from various multilateral agencies between 2019 and 2020 and 2021-2022 amounted to $5.8 billion.

Bangladesh received $732 million from the IMF as a balance of payment support and $1.4 billion from the World Bank to implement the countrywide vaccination program. It got sixty-one million doses of COVID-19 vaccines from the United States, free of cost. The government also presented various stimulus packages and repeatedly claimed that its economy not only turned around, but was on the road to a dramatic recovery.

This information reveals two things that the fallout from the pandemic should have been addressed in the past year with significant support from external sources, and that the government has been taking loans in recent years despite claims of robust economic growth.  External factors anyhow, four domestic areas tied to government policies can be identified as sources of the present crisis:

Since coming to power in 2009, the current PM of Bangladesh has undertaken several large infrastructure projects funded by various countries and multilateral agencies. These projects include the Padma Bridge, a nuclear power plant in Rooppur, Dhaka City Metro Rail, and Karnaphuli Tunnel, to name a few. Padma Bridge, one of the largest projects in the country, cost about $3.6 billion, which was formerly estimated to be $1.16 billion in 2007.

The aspiring nuclear power plant is costing Bangladesh $12.65 billion, and the actual amount to be spent will not be known until it is commissioned. The Metro Rail project ballooned to $3.3 billion from its original estimate of $2.1 billion. The cost of the underwater Karnaphuli Tunnel reached $1.03 billion, though originally estimated at $803 million.

Unluckily, these are not exceptions, but patterns. In 2017, the World Bank noted that the cost of road construction in Bangladesh was the maximum in the world. The cost overrun is largely because of overrating of materials, corruption, and long delays. In addition, the banking sector, which has been in the news for quite some time, is crippled by large scams and non-performing loans.

In 2019, when the Central Bank claimed that the total amount of defaulted loans was $11.11 billion, the IMF disputed this, saying that the true amount is more than double. The current official figure has been questioned by many on several grounds, however.  There is an explanation for this discrepancy bad loans can be easily manipulated and hidden through write offs and changing the official definition of “bad loans” to skirt regulations.

In simple words, the Central Bank is alleged to display a rosy which is quite inaccurate picture to show economic success of the incumbent government.  International watchdog organizations said that Bangladesh said that “huge political pressure and illegal intervention by some large business groups” are the reasons of a persistent upsurge in loan defaults.

This is not a new phenomenon, and though experts have been warning of such a situation for years, the Central Bank has not taken effective steps, instead changing policies to help the loan defaulters. In March 2022, the government celebrated its success in extending electricity coverage to the entire country. This, also came at a high price.

The increase in electricity generation was largely due to the establishment of Quick Rental Power Plants (QRPPs) in the private sector.  In the previous decade, the power sector received huge grants between 2010 and 2021, the Power Development Board received $7.1 billion, while the Bangladesh Petroleum Corporation received three billion dollars between 2010 and 2015. Remarkably, this occurred while the prices of electricity and fuel hiked for consumers.

Furthermore, the capacity charge provisions included in the contracts with Independent Power Producers, Rental Power Plants, and QRPPs force the government to pay these companies even when they did not provide any electricity.

These units are owned by companies connected to the government who are using the system to their benefit. In the past decade, twelve companies received $5.5 billion as capacity charges. Additionally, the government has signed agreements with Indian energy company Adani which would require Bangladesh to pay annually $423.29 million and $11.01 billion over its lifetime of twenty-five years as capacity for its energy supply.

In the past decade, as rampant corruption allowed a small group of people to amass large sums of money, Bangladesh witnessed widespread money laundering. It was alleged that between 2009 and 2018, annually $8.27 billion was siphoned through misuse of billing of the values of import-export goods. The growth of deposits by Bangladeshis in Swiss banks in the past decade is indicative of capital flight. In 2021, it augmented by 55.1 percent, reaching 871 million Francs ($912 million).

While these issues have added hugely to the economic disaster Bangladesh is facing. Therefore, Bangladesh’s pathway to the current economic crisis leading to its arrival at the entrance of the IMF did not result only from the pandemic and the Ukraine crisis. Instead, it was paved by the flawed by the economic policies of the current government and an unaccountable system of governance of the past.

The two consecutive national elections, held in 2014 and 2018, were alleged to be controversial and have created a one party system with no checks and balances. A bailout will only act as temporary relief. However, there is no guarantee that it will mystically solve the crisis without improving an economic system tied deeply to the regime’s self-centered political vision.