Why Bangladesh will not fall into a Sri Lankan crisis

Sri Lanka, an island nation in South Asia, has been going through an unprecedented economic crisis in recent times. The country is on the verge of bankruptcy due to poor economic management and a severe shortage of foreign currency. Since the beginning of the crisis, discussions have taken place over whether Bangladesh will accept a fate similar to that of Sri Lanka in the future. In this article, I have tried to explain why Bangladesh will not be like Sri Lanka from three angles: political, economic and the conundrum of the Chinese debt trap.


Gotabaya Rajapaksa, the interim president, and his brother Mahinda Rajapaksa, the former president, have been myopic in maintaining a balanced relationship with two Asian giants, China and India. During the civil war that ended in 2009, Sri Lanka leaned more toward China while sidelining India. Numerous rights groups at the time alleged that Chinese arms and assistance to Sri Lanka facilitated the bloodshed and death of thousands of trapped civilians.

There is speculation that China is turning its back on Sri Lanka amid a massive economic crisis. According to media reports, while President Gotabaya has asked China, Sri Lanka’s biggest lender, to restructure its debt to the country, China has yet to take a concrete decision. On the other hand, India’s economic aid to Sri Lanka this year amounted to over $3 billion and has been crucial in meeting the various needs of the government and people of Sri Lanka. Sri Lanka seems to receive more support from India than from China during this disaster.

Bangladesh has been careful in balancing its relations with China and India. While China has increased its economic cooperation with Bangladesh by funding development projects, India benefits from its shared history, values, culture and geographical proximity to the country. Although it has not made substantial investments like China, India has recently invested in several projects, including the expansion of railways, and boosted bilateral trade with Bangladesh. Bangladesh’s relations with India have reached a new high, which is a testament to its skill in the diplomatic field.


From an economic point of view, Bangladesh is in a better position than Sri Lanka. Sri Lanka’s total debt is $33 billion. With a total population of 22 million, the country’s per capita debt is $1,650. On the other hand, the total debt of Bangladesh is $49.45 billion. Considering the population of 168 million, Bangladesh’s per capita debt is $292.11. Sri Lanka’s debt per capita is almost six times that of Bangladesh. Due to the Corona outbreak, the flow of remittances from Sri Lanka has bottomed out. In the financial year 2020-21, while Sri Lanka received a remittance of $8.5 billion, Bangladesh reached a record high of $24.78 billion, almost three times as much than that of Sri Lanka. Bangladesh earned $4.76 billion from exports in March, while Sri Lanka earned $1.1 billion in January. While Sri Lanka’s export earnings have fallen, those of Bangladesh have increased. By May 2022, Sri Lanka’s foreign exchange reserve had fallen below $50 million, while Bangladesh had a reserve of $44.40 billion.

Another reason for Sri Lanka’s economic crisis is the non-repayment of foreign loans. Bangladesh, which is very successful in this regard, regularly repays the principal of the external debt. During the July-February period of the current fiscal year, the country repaid $1.34 billion in principal and interest on its outstanding medium- and long-term (MLT) external loans. According to the World Bank and the International Monetary Fund (IMF), a country would enter the danger zone if its external debt exceeds 40% of its GDP. Bangladesh is in the “safe zone” because its total external debt is less than 15% of its GDP. This contrasts sharply with the idea that Bangladesh is overburdened with external debt. Sri Lanka has recently undertaken several infrastructure development projects with foreign loans, which have not been of any use to the people. On the other hand, the government of Bangladesh has launched several infrastructure development projects, such as Padma Bridge, Metro Rail, Karnaphuli Tunnel and Ruppur Nuclear Power Plant, which are supposed to benefit ordinary people and are expected to provide good performance once launched. .


American statesman John Adams, who served as president from 1797 to 1801, said, “There are two ways to conquer and subjugate a country: one is by the sword; the other is in debt. By choosing the second path, China quickly rose to the rank of the world’s leading official creditor. This Chinese strategy of entrenching itself in different countries not politically but through loans is called debt trap diplomacy. Sri Lanka’s overall debt to China is $8 billion, which is about one-sixth of Sri Lanka’s total external debt of $45 billion. In 2017, Colombo was forced to lease the port of Hambantota in southern Sri Lanka from China for 99 years after defaulting on $1.4 billion in debt. In contrast, the Chinese loan represents only 6% of the total loan from Bangladesh. Bangladesh is still in debt among countries or institutions which are World Bank – 38%, Asian Development Bank – 24.5%, JICA – 17%, China – 6.81%, Russia – 6.18 % and India – 1.3%. While many countries are overwhelmed with Chinese debt, Bangladesh has been able to take full advantage of Chinese loans without major risk of running out of cash.

In light of the above discussion, Bangladesh needs to exercise caution when it comes to spending money on big projects, repaying debts and taking advantage of macroeconomic opportunities. Once Bangladesh becomes a developing country from a Least Developed Country (LDC) in 2026, it will no longer benefit from getting low interest loans. If import costs increase further, the reserve will be strained, reducing the chances of spending the reserve money on infrastructure projects. However, despite all the worrying factors, considering Bangladesh’s GDP, export earnings, foreign exchange reserves, remittances and other indicators of the economy, it can be said with certainty that the situation in Bangladesh probably won’t look like Sri Lanka’s.

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