If Bangladesh reserves are in crisis, will China stand by

If Bangladesh reserves are in crisis, will China stand by?


Yao Wen, the Chinese ambassador appointed in Dhaka, has been saying for the past several months that China will stand by Bangladesh in case of reserve crisis. China’s ambassador has said this several times in the past few months, which has been reported in the media.

Yao Wen

After the meeting with Foreign Minister Hasan Mahmud a few days ago, the Chinese ambassador is saying the same thing again.

Bangladesh’s foreign exchange reserves are under pressure. Reserves have been falling steadily for over a year and a half.

Fearing a crisis in foreign exchange reserves, the government has taken various steps to save dollars. But the government and Bangladesh Bank have always said that the situation is still under control.

If there is a reserve crisis in Bangladesh, how can China help? Why is China talking about this kind of assistance? There are many questions about these.

China’s participation in helping different countries in the world is a very old thing. As many countries have implemented their various development projects through loans from China, they have also taken loans for budget support.

China has also helped Bangladesh with loans for various development projects. Economists believe that the type of support China is talking about in the event of a potential reserve crisis could be budget support. But the matter is still not completely clear.

Bangladesh government is not saying anything about whether China will take budget support from China or not.

How can China help?

Debapriya Bhattacharya, Honorary Fellow and Economist at the Center for Policy Dialogue or CPD, one of Bangladesh’s leading research institutes, feels that whatever assistance comes from China will come in the form of loans.

Mr. BBC Bangla. Bhattacharya said, one is to provide budget support. In that case, the government can spend the money as it likes. Another is to provide loan assistance in payment of import bills.

“Whether it’s a soft loan, a hard loan, or a medium loan – that’s one thing,” said Mr. Bhattacharya.

Bangladesh imports the most from China. Loans can also be given to continue imports – that is another approach.

The Chinese government can settle the bills of the companies that Bangladesh imports from China. This is also a type of loan.

Many infrastructure development projects are currently underway in Bangladesh. China can also help Bangladesh if various types of materials have to be imported from China for the implementation of these projects. Then the projects will be implemented quickly.

Referring to the line of credit given by India, Mr. Bhattacharya said that the Indian government is paying the bill for the goods being imported from Indian companies.

Later, Bangladesh will be able to pay it in foreign currency through another agreement at its time.

However, in the current economic reality of Bangladesh, there may be some complications in taking loans from China. Because, Bangladesh has already taken a loan from the International Monetary Fund and more installments of the loan will come in the future.

In such a situation, it is also a matter of seeing whether the IMF will accept the loan from China, said Mr. Bhattacharya.

Zahid Hossain, former chief economist of the World Bank Dhaka office, told BBC Bangla that since the word was said in the context of reserves, the interpretation of Bangladesh’s ‘standing aside’ would naturally be to provide cash dollars or yuan in some way.

“China didn’t say that if there is a problem with investment, they will stand by Bangladesh. They said, if there is a problem with reserves, they will stand by. That means you don’t have cash, we will give you cash. That’s the Min (understanding).”

Zahid Hossain thinks that this support or standing by can be in three ways.

First: Budget assistance or balance of payment assistance. The difference between the two is – in the case of balance of payment support, it will be directly linked to reserves and the government will not be able to intervene there.

Through this, import costs will be met. It will be of no use in the case of government expenditure.

On the other hand, in the case of budget support, the government can use it in the implementation of its budget. In both cases cash or cash can be given.

Second is – Currency Swap. Which can be used for import from China.

Mr. According to Hussain, the third is to establish a line of credit. So as not to disrupt essential imports.

If there are no cash dollars to pay the bills for urgent import expenses such as fuel, electricity or fertilizer, China can pay them from that line of credit.

The question is, is the situation to take help from China created in Bangladesh?

“At the rate Bangladesh is running out of reserves and unable to lift controls on imports, if the dollars coming in through exports and remittances do not increase soon, then it is only a matter of time. One day the dollars will run out,” said Zahid Hossain.

Not a crisis, but alert

Many people criticize the level of foreign exchange reserve situation in Bangladesh, but the government or Bangladesh Bank says there is nothing to worry about.

Former Planning Minister MA Mannan told BBC Bangla that China definitely has the strength and experience to stand by Bangladesh.

He said that there is no crisis in the economy of Bangladesh, rather it is in a state of alert.

Mr. Mannan thinks that Bangladesh does not need budget support at the moment. However, if the rate of interest to be paid in the case of project loans is available in terms of budget support, then there is no problem in taking the loan.

“If the government considers taking budget support or reserve support for any reason, then it is on the government’s own decision.”

Any project assistance will come to the hands of the government. If the budget support is given, that money will be in the hands of the government. On the other hand, if project support is taken, it comes on a project basis. It is discussed every year.

The assurance given by China to Bangladesh is seen as a psychological Mr. Mannan

“China has a history of doing many things as a friendly country. So why do we needlessly turn away from here? I don’t see any reason.”

“My personal opinion is – China has the capacity, we need it. Since we want to take it, the selection process and decision-making should be in our hands,” said Mr. Mannan

Political interests?

The biggest problem in Bangladesh now is paying the dues of the energy companies.

Economist Debapriya Bhattacharya believes that China’s interest in lending is involved in geopolitics.

In his words, “China may want to lend for any reason. What matters is what we take into account.”

China is one of the countries that openly supported the elections held in Bangladesh last January 7. China has continued its open support for Sheikh Hasina’s government in defiance of the United States.

In the last 15 years, China has implemented several projects including the Padma road and rail bridge in Bangladesh, the tunnel under the Karnaphuli river, and the bus rapid transit project in Dhaka.

Economist Debapriya Bhattacharya believes that China’s ‘political points’ have been added to Bangladesh through the latest national elections. Now China wants to strengthen its position in the economic sphere by offering more loans.

“If economics can be linked to politics, the geostrategic position is strengthened,” said Mr. Bhattacharya.

China’s debt to various countries:

Aiddata of William and Mary University of the United States recently reported in their study that from 2020 to 2021, China has given loans to 20,000 projects in 165 low- and middle-income countries in the world, amounting to about 1.34 trillion dollars. This includes both loans and grants.

Among them, Russia has taken the largest loan in the development sector, amounting to 170 billion dollars.

Besides, Venezuela is in the second position. The country received $113 billion in loans and grants from China.

Pakistan ranks third in receiving loans and grants from China. Its amount is like 70 billion dollars.

China has deep diplomatic and military ties with Pakistan. Pakistan is considered an ideal place for China to invest.

Pakistan is an important partner in China’s much-desired Belt and Road Initiative.

However, there are many criticisms in the western world about China’s debt to various countries. Many Western economists describe the issue as the ‘China Debt Trap’ or the ‘China Debt Trap’.

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