Is Foreign Debt A Problem Of Bangladesh

ARYAN JAGANNATH UNIVERSITY-7TH
Batch MBA (FINANCE)
External debt
External debt (or foreign debt) is the total debt a country owes to foreign creditors. It refers to money borrowed
from a source outside the country. External debt has to be paid back in the currency in which it is borrowed.
The debtors can be the government, corporations or citizens of that country. The debt includes money owed to
private commercial banks, other governments, or international financial institutions such as the International
Monetary Fund (IMF) and World Bank. Note that the use of gross liability figures greatly distorts the ratio for
countries which contain major money centers such as the United Kingdom due to London's role as a financial
capital. Contrast net international investment position. External debt can be obtained from foreign commercial
banks, international financial institutions like IMF, World Bank, ADB etc and from the government of foreign
nations. Normally these types of debts are in the form of tied loans, meaning that these have to be used for a
predefined purpose as determined by a consensus of the borrower and the lender.
Debt of Developing Countries
The debt of developing countries refers to the external debt incurred by governments of developing countries,
generally in quantities beyond the governments' ability to repay. "Unplayable debt" is external debt with interest
that exceeds what the country's politicians think they can collect from taxpayers, based on the nation's gross
domestic product, thus preventing it from ever being repaid. The causes of debt are a result of many factors.
Some of the current levels of debt were amassed following the 1973 oil crisis. Increases in oil prices forced
many poorer nations' governments to borrow heavily to purchase politically essential supplies. At the same
time, OPEC funds deposited in western banks provided a ready source of funds for loans. While a proportion of
borrowed funds went towards infrastructure and economic development financed by central governments, a
proportion was lost to corruption and about one-fifth was spent on arms.
Debt abolition
There is much debate about whether the richer countries should be asked for money which has to be repaid. The
Jubilee Debt Campaign gives six reasons why the third world debts should be cancelled.
Firstly, several governments want to spend more money on poverty reduction but they lose that money in
paying off their debts. Jeff Rubin agrees with this stance on the basis that the money could have been used for
basic human needs and says is Odious Debt. Secondly, the lenders knew that they gave to dictators or
oppressive regimes and thus, they are responsible for their actions, not the people living in the countries of those
regimes. For example, South Africa has been paying off $22 billion which was lent to stimulate the apartheid
regime.They have yet to recover from this, their external debt has increased to $136.6 billion while the amount
of people in the housing backlog has increased to 2.1 million from 1994's 1.5 million. Also, many lenders knew
that a great proportion of the money would sometime be stolen through corruption. Next, the developing
projects that some loans would support were often unwisely led and failed because of the lender's
incompetence. Also, many of the debts were signed with unfair terms, several of the loan takers have to pay the
debts in foreign currency such as dollars, which make them vulnerable to world market changes. The unfair
terms can make a loan extremely expensive, many of the loan takers have already paid the sum they loaned
several times, but the debt grows faster than they can repay it. Finally, many of the loans were contracted
illegally, not following proper processes.
A seventh reason for canceling out some debts is that the money loaned by banks is generally created out of thin
air, sometimes subject to a small capital adequacy requirement imposed by such institutions as the Bank of
International Settlements. Maurice Félix Charles Allais (born 31 May 1911), 1988 winner of the Nobel
Memorial Prize in Economics commented on this by stating: "The ‗miracles‘ performed by credit are
fundamentally comparable to the ‗miracles‘ an association of counterfeiters could perform for its benefit by
lending its forged banknotes in return for interest. In both cases, the stimulus to the economy would be the
same, and the only difference is who benefits."
Consequences of debt abolition
Some people argue against forgiving debt on the basis that it would motivate countries to default on their debts,
or to deliberately borrow more than they can afford, and that it would not prevent a recurrence of the problem.
Economists refer to this as a moral hazard.

Batch MBA (FINANCE)
Foreign aid and Bangladesh scenario
Various donor countries and agencies have provided Bangladesh with substantial amounts of public foreign
assistance since independence in 1971. At the time of present government, from the fiscal year 2009-10 to the
fiscal year 2015-16, foreign aid of US$ 32.40 billion has been committed, of which 4.70 billion as grant and
US$ 27.70 billion as loan.
Bangladesh has several bilateral and multilateral associates to collect foreign aid from. These include
multilateral sources like World Bank, ADB, UN, European Union, IDB and also bilateral sources like Japan,
China, UK and India. These sources have played a vital role in the socio-economic and infrastructural
development of Bangladesh by providing assistance.
Bangladesh has now become as a low middle-income country and aspires to become a middle-income country
by 2021 - which is a reflection of the success of our economic policies and strategies. Recently, the Government
of Bangladesh has launched Aid Information Management System (AIMS) with the purpose of managing
foreign aid and collecting real-time data from development associates. Already 14 donor countries and
organisations have provided information to this system. Anyone can use the web portal (www.erd.gov.bd) from
anywhere and log into the public user to get the information.
Foreign Aid
Bangladesh is one of many developing countries in the world. It is an emerging tiger. It is developing day by
day in its different sectors. Since its independence the country has made a remarkable success in its health,
food, education and different other sectors in comparison with its neighbors- India and Pakistan. Foreign aids
have played a large role in its economic sector. After nine-month warfare with the West Pakistan it became an
independent country with nothing. A large part of infrastructures destroyed then. With huge burden of
population and limited resources made a challenge to go forward. Wide scale corruption hindered the
development. As a developing country inevitably Bangladesh has received a huge amount of aid from donor
countries and organizations. Aids come from different countries and organizations from different sectors. The
effectiveness of foreign aids to the third world developing countries is a controversial issue. Liberal economists
argue that aids both in the form of grants and loans can play vital role to the development of any country, if it is
channeled through proper biding and use effectively to the development projects. In contrary of that, aid causes
debt entrapment, dependency, domination etc. to the third world country like Bangladesh (Islam, 2013). This
paper will discuss about the foreign aids role in economic development in Bangladesh.
Foreign aid is the donations of money, goods, or services from one nation to another. Such donations can be
made for a humanitarian, altruistic purpose, or to advance the national interests of the giving nation. Foreign aid
is the international transfer of capital, goods, or services from a country or international organization for the
benefit of the recipient country or its population. Foreign aid can be defined more specifically into two
perspectives:
 Official development assistance by developed countries and multilateral institutions
 Unofficial aid through non-governmental and charitable foundations
 There have three types of aids: Grants; Loans; Supplier‘s/Buyers‘ Credit.
Economic Development: Development generally refers to positive change. Development has traditionally
meant the capacity of a national economy. Development must therefore be conceived of as a multidimensional
process involving major changes in social structures, popular attitudes, and national institutions, as well as the
acceleration of economic growth, the reduction of inequality, and the eradication of poverty.
Foreign aids and development in Bangladesh:
The Emergence of Bangladesh: Bangladesh emerged under unique circumstances, which even today are
influencing our national politics. While many leaders and activists played a part in the long struggle for the
emergence of Bangladesh, Bangabandhu Sheikh Mujibur Rahman‘s role was critical. By March 1971,
Bangabandhu had the entire machinery of administration in Bangladesh behind him. Between March 1 and
March 15, Bangladesh‘s de facto independence emerged as it assumed all the correlates of an independent state.
So total was the non-cooperation movement that the economy came near to collapse and Bangabandhu had to
escalate the movement from non-cooperation towards self-rule. As a result of these wide scale movements
geared Bangladesh towards an independent nation.

Batch MBA (FINANCE)
Types of aids given to Bangladesh: The international flow of capital involving borrowing and lending
across political borders is a relatively modern phenomenon. The bulk of the international flows of fund during
1870-1913 comprised private flows across only developed countries and the long-term debt of these countries in
1920 was estimated at only $100 million. Aid can be between two (bilateral) or many (multilateral)
countries/institutions. Bilateral aid is usually tied aid (conditional aid) is when recipients must purchase
products/ services from the donor country. Multilateral aid is usually untied aid that can be spent in any sector
of the recipient country. Foreign aid is one of the most important parts of external sector. Bangladesh receives
foreign aid in two forms – grants and loans. The grants are given without expecting anything in return and the
loans are given at a certain payable interest rate. Bangladesh receives three types of aids from donor countries
and organizations:
Food aid; Commodity aid; Project aid.
There are three types of development partners give aid to Bangladesh:
Bilateral, Multilateral, Private charitable organizations
Sectoral distribution of the Flow of Bilateral Aid in Bangladesh at a Glance
1970s: Post-war rehabilitation and infrastructure; NGOs
1980s: Infrastructure and technical assistance; NGOs; Community based development; service delivery
1990s: Sector-wide approach in health, education; service delivery; democratic development; institutional
development; governance
2000s: Sector-wide, and multi-donor joint funding for service delivery, move away from infrastructure;
governance
2010s: Sector-wide, multi-donor, supporting government programs, move away from NGOs
Foreign aid flow in development sector of Bangladesh:
Foreign aid both grants and loans has impacts on the economy of Bangladesh. It contributes to the development
works like bridge, roads, highways, infrastructural works etc. Though prime focus of aid is economic
development, aid has contributed to governance, democracy, human rights, human resource development,
environment, institutional reform etc with the changing perspective of donor‘s strategy. From 1972/73 the flow
of foreign aid geared up. Since then many sectors have been covered by foreign aid. Mostly included sectors
are- power; education; public administration; health and family planning; water resources; social welfare;
agriculture etc.
FOREIGN AID AND DEVELOPMENT
Foreign aid to developing countries has been an important source of finance to enhance economic growth.
However, numerous studies of aid effectiveness have failed to arrive at a consensus. Some studies on aid
effectiveness found that foreign aid adversely affected domestic resource mobilisation. While others hold the
view that aid has a positive impact on growth. Now the question is how does foreign aid affect the economic
growth of developing countries?
Positive Relationship between Foreign Aid & Development
Some researchers suggested that good economic policy is a pre-requisite for the effectiveness of aid. This view
has been challenged by many who find that aid is effective even independent of policy. In general, aid is found
to have a positive impact on economic growth through several mechanisms (i) aid increases investment (ii) aid
increases the capacity to import capital goods or technology (iii) aid does not have an adverse impact on
investment and savings (iv) aid increases the capital productivity and promotes endogenous technical change.
Papanek finds a positive relation between aid and growth. Fayissa and El-Kaissy show that aid positively affects
economic growth in developing countries. Singh also finds evidence that foreign aid has positive and strong
effects on growth when state intervention is not included. Snyder shows a positive relation between aid and
growth when taking country size into account. Burnside and Dollar claim that aid works well in the good-policy
environment. Developing countries with sound policies and high-quality public institutions have grown faster
than those without them. The good-management, high-aid groups grew much faster, at 3.7% per capita GDP.
Aid has successfully supported poverty reduction and growth promotion in many countries. Consequently, even
if aid flows have not stimulated growth under all circumstances, they have had a positive effect on average (UN
Issue Paper, 2007, p.1). The most influential study of this movement is that by Burnside and Dollar which
focused on the impact of policy on aid effectiveness. The authors used an interaction term between aid and an

Batch MBA (FINANCE)
index of economic policy in order to study the aid- policy- growth relationship. In this study the authors
comprising fiscal, monetary and foreign-exchange variables in the recipient country. The results of Burnside
and Dollar‘s analysis suggest that aid promotes growth only in countries with sound economic policy regimes.
The authors assume that combine effects among aid and policy are successful because, in good policy
environments, either the fraction of invested aid or the resulting increase in productivity is larger.
Negative Relationship between Foreign Aid & Development
By contrast, foreign aid is found to be significantly and negatively correlated with growth. There are a number
of underlying causes, such as aid dependency, bad economic management of the recipient countries, corruption
and poor coordination and cooperation among aid agencies etc.
Many researchers find that foreign aid has negative impact on growth. ―Knack argues that high level of aid
erodes institutional quality, increases rent-seeking and corruption; therefore, negatively affects growth. Easterly,
Levine and Roodman, using a larger sample size to re-examine the works of Burnside and Dollar, find that the
results are not as robust as before. Gong and Zou show a negative relation between aid and growth‖.
Firstly, due to the volatile nature of aid, the government of the recipient country is sometimes unable to
mobilize the volume of aid on time and fails to persuade donors that remaining funds will be spent efficiently.
Thus, disbursement of aid may be further delayed; hampering the government‘s spending ability. Conditionality
is another problem related to foreign aid which constraints the economic development of the recipient countries.
Moss, a former consultant for the World Bank, said that tied aid is ―highly inefficient since it restricts the
market and thus costs the donor more money for the same benefit‖.
Secondly, we think capacity has been a major constraint. Traditionally, the donor-recipient relationship has
been an asymmetric one involving a strong and a weak party, where political and economic structures of
domination and exploitation provided little space for the latter to choose. If the aid is tied one then at the time of
negotiation, the donors bargain with their high capacity. Sometimes foreign aid makes a nation aid dependent
rather than making economically independent. Food aid injected in Somalia bring food deficit to the country.
Somalia had become alarmingly dependent on imported food (Mathew, 2009 on the Daily Gambia Echo).
Since most foreign aid is government to government, it is ruler‘s discretion how they allocate foreign aid
resources- whether in productive or unproductive sectors. More recently some authors have argued that the
effectiveness of foreign aid may depend on the way in which aid is disbursed. If foreign aid contributes to any
productive consumption, such as enhancing education, building rural and urban infrastructure, protecting
private property, and reducing trade risks, it results in a net benefit to economic performance, and countries that
receive more aid should expect increase in their well-being. But ruler does not want to invest the aid resources
in the above sectors, because they would be failed to return the loan money and become the victim of the loan
trap. Ultimately it can not bring the proper economic growth of the country.
Actually foreign aid has generally benefited the ruling elite and top management of the NGOs. So the ultimate
goal of foreign aid can not be obtained. One study revels that rather than create wealth, prosperity and economic
development, most Africans have over the past few decades realized a net decline in their standards of living.
On the contrary, the ruling elite became richer. According to Mathew, 2009, on the Daily Gambia Echo, ―….
over the period that foreign aid was being pumped into Africa, the per capita GDP declined by an averaged of
0.59 percent annually between 1975 and 2000. Foreign aid has been found to do more harm to Africa leading to
a situation where Africans have failed to set their own pace and direction of development free of external
interference‖. Lack of commitment and accountability of the aid-recipient country is also a reason for which
economic growth is being hampered. Powerful rulers have discretion over how foreign aid is used and/or
distributed. Since they do not have to be accountable to any one sometimes they exploit their power to grab the
aid resources. Sometimes they give emphasis on short-term political interests and time preferences, for the
foreign aid resources. Ali, and Isse ―Since no one expects to reap the future profitability of aid, in such settings,
rulers might adopt policies that benefit them in the short term but hurt the nation in the long run‖.
Finally, the relation between aid and growth varies across the regions. Sub-Sahara is the region with largest
amount of aid provided by donors but the economic performance remains fairly poor. This may be due to lack
of the appropriately designed programs, timely and sufficient disbursement, corruption of the high officials and
strict penalty upon deviation or violation etc. Foreign aid contributed to relaxing government budget constraints
and thus increasing government consumption.

Batch MBA (FINANCE)
Factors affected by Foreign Debt
Exchange rate
The price of a nation‘s currency in terms of another currency. An exchange rate thus has two components, the
domestic currency and a foreign currency, and can be quoted either directly or indirectly. In a direct quotation,
the price of a unit of foreign currency is expressed in terms of the domestic currency. In an indirect quotation,
the price of a unit of domestic currency is expressed in terms of the foreign currency. An exchange rate that
does not have the domestic currency as one of the two currency components is known as a cross currency, or
cross rate.
GDP
The monetary value of all the finished goods and services produced within a country's borders in a specific time
period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption,
government outlays, investments and exports less imports that occur within a defined territory.
GDP = C + G + I + NX
Where: "C" is equal to all private consumption, or consumer spending, in a nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on capital
"NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports).
Inflation The rate at which the general level of prices for goods and services is rising, and, subsequently,
purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an
attempt to keep the excessive growth of prices to a minimum.
Lending rate
The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.
Interest rates are typically noted on an annual basis, known as the annual (APR). The assets borrowed could
include, cash, consumer goods, large assets, such as a vehicle or building. Interest is essentially a rental, or
leasing charge to the borrower, for the asset's use. In the case of a large asset, like a vehicle or building, the
interest rate is sometimes known as the "lease rate". When the borrower is a low-risk party, they will usually be
charged a low interest rate; if the borrower is considered high risk, the interest rate that they are charged will be
higher.
Historical Data
Year
External Debt
(US $ Million)
External Debt
% of GDP
External debt
stocks (% of GNI)
Inflation CPI
(%)
Lending
Rate (%)
Exchange
Rate US$
Total reserve % of
total external debt
1997 14373 33.96 31.835 5.19 14 43.9 11.3
1998 14813 33.64 28.738 8.27 12.93 46.9 12.5
1999 15338 33.56 30.166 6.31 13.1 49.1 9.9
2000 15791 33.51 31.135 2.39 12.76 52.1 9.7
2001 14677 31.24 28.316 1.93 12.82 55.8 8.7
2002 15885 33.74 26.93 3.37 12.61 57.9 10.3
2003 16953 33.70 29.328 5.59 12.04 58.2 14.2
2004 17953 32.70 29.469 7.62 10.4 59.5 16.3
2005 18416 30.5 29.027 7.03 10.61 64.3 15.3
2006 18603 30.00 25.518 6.77 11.66 68.9 19.2
2007 19355 28.30 26.575 9.07 12.64 68.9 24.5
2008 20266 25.50 25.466 8.94 12.89 68.6 24.7
2009 20859 23.30 23.72 5.43 13.33 69.0 40.7
2010 20336 20.30 22.999 8.15 12.22 69.6 41.6
2011 22086 19.70 21.571 10.7 13.32 74.2 33.6
2012 22095 16.60 19.679 6.2 13.94 81.9 44.7
2013 22381 14.90 19.745 7.54 13.59 78.1 53.2
2014 24388 14.10 20.979 7.00 12.94 77.6 62.6
2015 23901 12.30 19.341 6.19 11.71 77.9 71.2
2016 25963 11.70 18.6 5.52 10.41 78.5 -

Batch MBA (FINANCE)
Foreign Debt
 The effects of foreign debt and the policies adopted to address them on the full enjoyment of all human
rights, in particular, economic, social and cultural rights in developing countries in our country due to
corruption this facility get voided.
 Large scale of foreign debt kills the potential industry of our country and reduces the power of making
policies.
 Foreign debt is very harmful for the national banking industry and especially in this situation where it is
forecast that bank industry going to collapse in our country.
 The higher growth of debt means the higher amount of debt service. This is in our country too high to cope
with in our country.
 Higher debt is killing the potentiality to impose barriers on foreign investors.
GDP (Current Prices, US Dollar)
 The GDP growth rate is driven by retail expenditures, government spending, exports and inventory levels.
Rises in imports will negatively affect GDP growth.
 GDP is growing, so will business, jobs and personal income.
 A Growing GDP in Bangladesh represent Growth of Net Export, Investment, Consumption, Govt. spending.
 In our country GDP doesn‘t incorporate Housework, Volunteering, Higher Education, crime, corruption, and
change in leisure time.
Inflation CPI
 Volatility of inflation represent the unstable situation of economy.
 It has gone two digit for a few times and it represent lower purchasing power of people.
 Higher inflation attracts FDI upto some limit and this situation occurs in our country.
 It represent highly volatile political situation and failure of administrations.
Lending Rate/interest rate
 Higher lending rate representing lower bargaining power.
 Higher lending rate volatile situation over foreign market.
 Higher lending rate represents volatile relationship with allies‘ state.
 Stable lending rate representing failure of bargaining and policies to reduce rate at the time of higher amount
of foreign debt.
Exchange rate
 The exchange rate growth represents the weak buying capability of USD.
 A higher currency makes a country's exports more expensive and imports cheaper in foreign markets; a lower
currency makes a country's exports cheaper and its imports more expensive in foreign markets. Our currency is
in a lower position in foreign market.
 We have a high debt. A large debt encourages inflation, and if inflation is high, the debt will be serviced and
ultimately paid off with cheaper real dollars in the future.
 If a government is not able to service its deficit through domestic means (selling domestic bonds, increasing
the money supply), then it must increase the supply of securities for sale to foreigners, thereby lowering their
prices. This is happening in our country.
Impact of Foreign debt on Bangladesh
1. Effects on Economic growth
2. Effects on NNP
3. Effects on Inflation
4. Effects on Investment
5. Effects on consumption
6. Effects on Production
7. Effects on Distribution
8. Effects on Risk, uncertainty, liquidity

Batch MBA (FINANCE)
External debt sustainability
Sustainable debt is the level of debt which allows a debtor country to meet its current and future debt service
obligations in full, without recourse to further debt relief or rescheduling, avoiding accumulation of arrears,
while allowing an acceptable level of economic growth.
External-debt-sustainability analysis is generally conducted in the context of medium-term scenarios. These
scenarios are numerical evaluations that take account of expectations of the behavior of economic variables and
other factors to determine the conditions under which debt and other indicators would stabilize at reasonable
levels, the major risks to the economy, and the need and scope for policy adjustment. In these analysis,
macroeconomic uncertainties, such as the outlook for the current account, and policy uncertainties, such as for
fiscal policy, tend to dominate the medium-term outlook.
The World Bank and IMF hold that "a country can be said to achieve external debt sustainability if it can meet
its current and future external debt service obligations in full, without recourse to debt rescheduling or the
accumulation of arrears and without compromising growth". According to these two institutions, "bringing the
net present value (NPV) of external public debt down to about 150 percent of a country's exports or 250 percent
of a country's revenues" would help eliminating this "critical barrier to longer-term debt sustainability". High
external debt is believed to be harmful for the economy.
Indicators of external debt sustainability
There are various indicators for determining a sustainable level of external debt. While each has its own
advantage and peculiarity to deal with particular situations, there is no unanimous opinion amongst economists
as to a sole indicator. These indicators are primarily in the nature of ratios—i.e., comparison between two heads
and the relation thereon and thus facilitate the policy makers in their external debt management exercise. These
indicators can be thought of as measures of the country‘s ―solvency‖ in that they consider the stock of debt at
certain time in relation to the country‘s ability to generate resources to repay the outstanding balance.
Examples of debt burden indicators include the
(a) Debt-to-GDP ratio,
(b) Foreign debt to exports ratio,
(c) Government debt to current fiscal revenue ratio etc.
This set of indicators also covers the structure of the outstanding debt, including:
(d) Share of foreign debt,
(e) Short-term debt, and
(f) Concessional debt ("loans with an original grant element of 25 percent or more") in the total debt stock.
A second set of indicators focuses on the short-term liquidity requirements of the country with respect to its
debt service obligations. These indicators are not only useful early-warning signs of debt service problems, but
also highlight the impact of the inter-temporal trade-offs arising from past borrowing decisions.
Examples of liquidity monitoring indicators include the
(a) Debt service to GDP ratio,
(b) Foreign debt service to exports ratio,
(c) Government debt service to current fiscal revenue ratio
The final indicators are more forward-looking, as they point out how the debt burden will evolve over time,
given the current stock of data and average interest rate. The dynamic ratios show how the debt-burden ratios
would change in the absence of repayments or new disbursements, indicating the stability of the debt burden.
An example of a dynamic ratio is the ratio of the average interest rate on outstanding debt to the growth rate of
nominal GDP.

Batch MBA (FINANCE)
Statistical Analysis using SPSS
The equation of regression of Exchange Rate on Foreign Debt (Impact of Foreign Debt
in Exchange Rate)
Coefficients
a
Model Unstandardized Coefficients Standardized t Sig.
Coefficients
B Std. Error Beta
1 (Constant) -.630 4.294 -.147 .884
Foreign Debt .048 .005 .858 10.415 .000
a. Dependent Variable: Exchange Rate
The required equation is Y= a+bX Where, Y= Exchange Rate, a= Constant, X= Foreign Debt
Y= -.630 + .048X
The equation indicates that

If all the variables remain zero then there will be higher value of the money (Taka) that means

 exchange rate per dollar will be decreased at TK 0.63 per 1 US$.


If the Foreign Debt increases for $ 1, Exchange Rate of the country will increase by TK 0.048 per US $

R= Coefficient of multiple correlation
It determines the extent or degree of relationship among the variables:
Range Degree of relationship
0 Absences of relationship
.01-.29 Very low degree of relationship
.30-.49 Low degree of relationship
.50-.69 Moderate degree of relationship
.70-.89 High degree of relationship
.90-.99 Very high degree of relationship
1 Perfect relationship

Batch MBA (FINANCE)
Model Summary
Model R R Square Adjusted R Std. Error of the
.858
a Square Estimate
1 .736 .729 11.09133
a. Predictors: (Constant), Foreign Debt
As we find that R= 0.858 from the table. So, there exist a high degree of
relationship between the variables under the study
R
2
= coefficient of multiple determination
We know that if R
2
is more than 50% or .50 then the independent variables
are very influential
Model Summary
.858
a Square Estimate
1 .736 .729 11.09133
As we find that R
2
= 0.736 from the table. It indicates that Foreign Debt explain
73.6% variation in the exchange rate. So the variables are very influential.
Correlations
Exchange Rate Foreign Debt
Pearson Correlation Exchange Rate 1.000 .858
Foreign Debt .858 1.000
Sig. (1-tailed) Exchange Rate . .000
Foreign Debt .000 .
N Exchange Rate 41 41
Foreign Debt 41 41
Coefficients
a
Coefficients
B Std. Error Beta
1 (Constant) -.630 4.294 -.147 .884
Foreign Debt .048 .005 .858 10.415 .000
As b, is significant at .048 level, there is significant relationship between foreign
debt and exchange rare. As we know less than 5% is significant.

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ANOVA
b
Model Sum of Squares df Mean Square F Sig.
1 Regression 13343.352 1 13343.352 108.467 .000
a
Residual 4797.690 39 123.018
Total 18141.042 40
b. Dependent Variable: Exchange Rate
The result of ANOVA table indicates that the relationship between foreign debt and
exchange rate are statistically significant. As the test is significant at .000 level which
is less than .05
Descriptive Statistics
Mean Std. Deviation N
Exchange Rate 40.2905 21.29615 41
Foreign Debt 8.4452E2 376.94008 41
Influential variables
Coefficients
a
Coefficients
B Std. Error Beta
1 (Constant) -.630 4.294 -.147 .884
Foreign Debt .048 .005 .858 10.415 .000
It can be understand by beta coefficient that that the variable are influential.

Batch MBA (FINANCE)
The equation of regression of GDP on Foreign Debt (Impact of Foreign Debt in GDP)
Coefficients
a
Coefficients
B Std. Error Beta
1 (Constant) -18485.207 5977.116 -3.093 .004
Foreign Debt 72.242 6.476 .873 11.155 .000
a. Dependent Variable: GDP (Current Price, US$)
The required equation is Y=a+bX Where, Y= GDP, a= Constant, X= Foreign Debt
Y= -18485.207 + 72.242X

If foreign debt remain zero then there will be loss of GDP (Current Price) amounting US$

 18485.207 Million.


If the Foreign Debt increases for $ 1000000, GDP of the country will increase by US$ 72242000.


Batch MBA (FINANCE)
Model Summary
.873
a Square Estimate
1 .761 .755 15438.94287
As we find that R= 0.873 from the table. So, there exist a high degree
of relationship between the variables under the study
R
2
We know that if R
2
Model Summary
.873
a Square Estimate
1 .761 .755 15438.94287
As we find that R
2
= 0.761 from the table. It indicates that Foreign Debt
explain 76.1% variation in the GDP. So the variables are very influential.
Correlations
GDP (Current Foreign Debt
Price, US$)
Pearson Correlation GDP (Current Price, US$) 1.000 .873
Sig. (1-tailed) GDP (Current Price, US$) . .000
Foreign Debt .000 .
N GDP (Current Price, US$) 41 41
Foreign Debt 41 41
Coefficients
a
Coefficients
B Std. Error Beta
1 (Constant) -18485.207 5977.116 -3.093 .004
Foreign Debt 72.242 6.476 .873 11.155 .000
As b, is significant at 72.242 level, there is no significant relationship between foreign
debt and GDP. As we know less than 5% is significant.

Batch MBA (FINANCE)
ANOVA
b
1 Regression 2.966E10 1 2.966E10 124.435 .000
a
Residual 9.296E9 39 2.384E8
Total 3.896E10 40
b. Dependent Variable: GDP (Current Price, US$)
The result of ANOVA table indicates that the relationship between foreign debt
and GDP are statistically significant. As the test is significant at .000 level which is
less than .05
GDP (Current Price, US$) 4.2524E4 31207.61011 41
Foreign Debt 8.4452E2 376.94008 41
Coefficients
a
Coefficients
B Std. Error Beta
1 (Constant) -18485.207 5977.116 -3.093 .004
Foreign Debt 72.242 6.476 .873 11.155 .000
It can be understand by beta coefficient that that the variable are influential at .873.

Batch MBA (FINANCE)
The equation of regression of Inflation on Foreign Debt (Impact of Foreign Debt
in Inflation)
Coefficients
a
Coefficients
B Std. Error Beta
1 (Constant) 4.159 1.630 2.551 .017
Foreign Debt .002 .002 .267 1.384 .179
a. Dependent Variable: Inflation CPI
The required equation is Y=a+bX Where, Y= Inflation, a= Constant, X= Foreign Debt
Y= -4.159 + .002X

If foreigndebt remain zero then there will be positive inflation under consumer pricing index

 of 4.16%


If the Foreign Debt increases for $ 1000000, country will loss $ 2000 from $1000000 meaning that for $ 1
increase in foreign debt will induce 0.2% inflation rate.


Batch MBA (FINANCE)
Model Summary
.267
a Square Estimate
1 .071 .034 2.42172
As we find that R= 0.267 from the table. So, there exist a very low degree of
relationship between the variables under the study
R
2
We know that if R
2
Model Summary
.267
a Square Estimate
1 .071 .034 2.42172
As we find that R
2
= 0.071 from the table. It indicates that Foreign Debt explain
7.1% variation in the inflation rate. So the variables are relatively low influential.
Correlations
Inflation CPI Foreign Debt
Pearson Correlation Inflation CPI 1.000 .267
Sig. (1-tailed) Inflation CPI . .089
Foreign Debt .089 .
N Inflation CPI 27 27
Foreign Debt 27 27
Coefficients
a
Coefficients
B Std. Error Beta
1 (Constant) 4.159 1.630 2.551 .017
Foreign Debt .002 .002 .267 1.384 .179
As b, is significant at .002 level, there is significant relationship between foreign debt and
inflation. As we know less than 5% is significant.

Batch MBA (FINANCE)
ANOVA
b
1 Regression 11.228 1 11.228 1.914 .179
a
Residual 146.618 25 5.865
Total 157.845 26
b. Dependent Variable: Inflation CPI
inflation are statistically not significant. As the test is significant at .179 level which
is more than .05
Inflation CPI 6.3204 2.46394 27
Foreign Debt 1.0302E3 313.21647 27
Coefficients
a
Coefficients
B Std. Error Beta
1 (Constant) 4.159 1.630 2.551 .017
Foreign Debt .002 .002 .267 1.384 .179
It can be understand by beta coefficient that that the variable are influential at .267 level.

Batch MBA (FINANCE)
The equation of regression of Lending Rate on Foreign Debt (Impact of Foreign Debt
in Lending Rate/Interest Rate)
Coefficients
a
Coefficients
B Std. Error Beta
1 (Constant) 16.162 1.369 11.802 .000
Foreign Debt -.001 .001 -.430 -1.349 .214
a. Dependent Variable: Lending Rate/Interest Rate
The required equation is Y=a+bX Where, Y= Lending Rate, a= Constant, X= Foreign Debt
Y= 16.162 - .001X


If foreign debt remain zero then there will be positive lending rate in the country at 16.16%


If the Foreign Debt increases for $ 1000000, lending rate upon $ 1000will be reduce meaning that for increasing $1 as
foreign debt will reduce 0.1 % lending rate.


Batch MBA (FINANCE)
Model Summary
.430
a Square Estimate
1 .185 .083 1.18377
As we find that R= 0.430 from the table. So, there exist a low degree
of relationship between the variables under the study
R
2
We know that if R
2
Model Summary
.430
a Square Estimate
1 .185 .083 1.18377
As we find that R
2
= 0.185 from the table. It indicates that Foreign Debt
explain 18.5% variation in the lending rate. So the variables are low influential.
Correlations
Lending Foreign Debt
Rate/Interest
Rate
Pearson Correlation Lending Rate/Interest Rate 1.000 -.430
Foreign Debt -.430 1.000
Sig. (1-tailed) Lending Rate/Interest Rate . .107
Foreign Debt .107 .
N Lending Rate/Interest Rate 10 10
Foreign Debt 10 10
Coefficients
a
Coefficients
B Std. Error Beta
1 (Constant) 16.162 1.369 11.802 .000
Foreign Debt -.001 .001 -.430 -1.349 .214
As b, is significant at -.001 level, there is no significant relationship between foreign
debt and lending rate. As we know less than 5% (positive) is significant.

Batch MBA (FINANCE)
ANOVA
b
1 Regression 2.550 1 2.550 1.820 .214
a
Residual 11.210 8 1.401
Total 13.760 9
b. Dependent Variable: Lending Rate/Interest Rate
lending rate are statistically not significant. As the test is significant at .214 level which is
more than .05
Lending Rate/Interest Rate 14.3850 1.23649 10
Foreign Debt 1.2884E3 385.92495 10
Coefficients
a
Coefficients
B Std. Error Beta
1 (Constant) 16.162 1.369 11.802 .000
Foreign Debt -.001 .001 -.430 -1.349 .214
It can be understand by beta coefficient that that the variable are influential at .214 level.

Batch MBA (FINANCE)
Findings
From the above analysis we can summarized that the foreign debt has great impact in the economy in
Bangladesh. External debt (or foreign debt) is that part of the total debt in a country that is owed to creditors
outside the country. The debtors can be the government, corporations or citizens of that country. The main
indicator of foreign debt is foreign debt to GDP and foreign debt to GNI. In % of GNI it represents a quite
domination of foreign debt over our income which represents a high proportion of debt service cutting our
income. The rate is getting reduced over a few years which is a good decision sign for the total income. Total
reserve % of total external debt in Bangladesh was last measured at 71.2 in 2015. In case of % of GDP from a
low of about 3% of GDP in the early 1990s, it has now 11.7% GDP in 2016. It represents the growth of
percentage of foreign debt over GDP which is an alarming notification. If it gets more than foreign power will
manipulate our policies and govt.
In case of exchange rate, a higher level of foreign currency makes a country's exports more expensive and
imports cheaper in foreign markets; a lower currency makes a country's exports cheaper and its imports more
expensive in foreign markets. In case of debt, large scale of foreign debt kills the potential industry of our
country and reduces the power of making policies. Foreign debt is very harmful for the national banking
industry and especially in this situation where it is forecast that bank industry going to collapse in our country.
In case of GDP, it is growing, so will business, jobs and personal income. In our country GDP doesn’t
incorporate Housework, Volunteering, Higher Education, crime, corruption, and change in leisure time.
Although GDP is growing along with the foreign debt. If it is so, it is an alarm for the country that is the
dependency with other nation. Beside this foreign debt induce inflation in the market because of availability of
money supply in the market. When a large number of foreign debt comes from debtor it always induce partial
inflation in the market. Although foreign debt control the lending rate in the country beside that government of
the nation should avoid it until local debt is available & less costly compare to foreign debt.
From the equation of regression of Exchange Rate on Foreign Debt we found that there is a positive relationship
of exchange rate & foreign debt with high degree of relationship. There also exists a significant relationship
between them. If foreign debt reduces the country will face deflation in local currency and vice versa. From the
equation of regression of GDP on Foreign Debt we found that there is a positive relationship of GDP & foreign
debt with high degree of relationship. There also exists no statistically significant relationship between them. If
foreign debt reduces the country will face low GDP. Although this is alarming for present day, but if the nation
can increase its production from local supply without foreign debt dependency it will be huge in near future. At
present this is alarming for Bangladesh that most of its GDP portion financed by foreign debt. From the
equation of regression of Lending Rate on Foreign Debt we found that there is a negative relationship of lending
rate & foreign debt with low degree of relationship. There also exists no significant relationship between them.
If foreign debt reduces the country will face higher lending rate offered by the respective organizations. Higher
lending rate represents volatile relationship with allies’ state.
Last of all foreign debt can be both curse & blessing for us. It will be curse if we can’t control it over our
growth. Huge amount of grants/aid causes to loss control of the government over national policies. Beside this it
will be blessing if we can use it appropriately when it is necessary for the country. Along with, country should
reduce its dependency over the foreign debt because it creates inflation in the market & at the time of payoff get
dollar with cheaper rate.
Recommendation
• A ―MDG-consistent frame-work of Debt Sustainability should be applied and cancellation must be available
to all that need it.
• The governments of indebted countries must demonstrate to their citizens that they are spending money well
and accountably. But this must not be used as an excuse to impose economic policy conditions or to limit those
countries receiving debt cancellation by the donor community;
• Rich countries, institutions and commercial creditors must cancel all illegitimate and un-payable debts being
claimed from all poor countries;
• Total Debt stocks must be cancelled, not just Service; debt service cancellation for a limited period is not
enough.
• Debt cancellation of any kind must not be conditional and it must not be considered again as ODA

Is Foreign Debt A Problem Of Bangladesh

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