Foreign Debt Impact on Bangladesh Economy

Is Foreign Debt a Problem for Bangladesh? Justify the Implication on Economy.
Report of FIN-5104:
International Financial Management
Submitted To
Professor Dr. Md. Abu Misir

Chairman,
Department of Finance,
Faculty of Business Studies
Jagannath University, Dhaka
Submitted By
Sultan Ahmed Khan

Representative of the group
Epimetheus
MBA 3rd Batch
Faculty of Business Studies
Jagannath University, Dhaka.
Group Name: Epimetheus

Name of the members of the group:
Serial No:
Name of the members of the group
Roll Number
01
Sultan Ahmed Khan
091597
02
Md. Anik Mahmud
091636
03
Md. Mehedi Hasan
091590
04
Sharjil Ahmed
091623
05
Protiva Talukder
091602
06
Sakhawat Hosain Chowdhury
091574
07
Mohammad Didarul Islam Khan
091613
08
Mohammad Mahmudul Hasan
091534
Group Representative: Sultan Ahmed Khan.
Contact
: epimetheus.jnu@gmail.com
Web
: https://epimetheus.yolasite.com
May 7, 2014
The Course Instructor,
Professor Dr. Md. Abu Misir,

Chairman
Jagannath University, Dhaka.
Sub: Thanks giving letter to the respective faculty member.
Sir,
We are the student of Department of Finance (3rd batch) of Jagannath University, Dhaka &
also from the group named Epimetheus. We are very much enthusiastic about our
presentation. We are really happy to have such a presentation of challenging and interesting
like this presentation & also thanks to you for making us worthy for corporate. Our
presentation topic is Is Foreign Debt a Problem for Bangladesh? Justify the Implication on
Economy. We have learned many things from this topic which will help us in future to
conduct as an official in the organization. There were some obstacles we have faced at the
time of collecting data about our topic. But we have overcome all the obstacles by the
endeavor effort by each member of our group and tried our best to give an overview of our
topic.
We the group Epimetheus tried our best to make this presentation attractive, impeccable,
interesting, informative and enjoyable by the help of electronic and print media in association
with our honorable teacher, mentor, counselor, instructor and advocate Professor Dr. Md.
Abu Misir. We are really grateful to him. We had limitations at the time preparing
presentation. So mistakes may occur in our demonstration of our presentation. We hope that,
you will exempt our mistakes.
Thanking in anticipation,
Yours Fidel,
Sultan Ahmed Khan

Group Representative,
Group-Epimetheus
MBA 3rd Batch
Department of Finance
Jagannath University,Dhaka.
First of all we would like to thank the Almighty for giving us the strength, and the aptitude to
complete this report within due time. We are deeply indebted to our course teacher, mentor,
and counselor, Professor Dr. Md. Abu Misir for assigning us such an interesting topic
named Is Foreign Debt a Problem for Bangladesh? Justify the Implication on
Economy. We also express the depth of my appreciation to our honorable course teacher for
his suggestion and guidelines, which helped us in completing this report.
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 48.81 in 2012. In case of % of GDP from a
low of about 3% of GDP in the early 1990s, it has increased to 20% of the GDP in 2007-08.
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
Last of all foreign debt can be both curse & blessing for us. It will be curse if we cant 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.
Index
Page no
Executive Summary
Introduction
Introduction
Rational of the study
Objective of the study
Scope of the study
ii
Methodology of the study
ii
Limitations of the study
ii
Body of the term paper

Foreign Aid
Reasons Donor Countries DO Give Aid
Distribution of Foreign Aid
Forms of Foreign Aid
Understanding Foreign Aid
Sources of Foreign Aid
Factors Affected by Foreign Debt
Historical Analysis
Statistical Analysis
13
Findings
25
Introduction
Foreign aid refers to the transfer of goods, capital or services from an international
organization or a country to offer some benefits or help to the recipient country. This aid
comes in several forms for example; military, emergency humanitarian or economic aid.
Foreign aids are provided in a country in two forms. One is foreign grants and another is
foreign aid.
In this term paper we tried to show what factors are affected by foreign debt. Beside this we
tried to show that how Exchange rate, GDP, Inflation, & Lending Rate (dependent variable)
is influenced by Foreign Debt (independent variable). Independent variables in general put
great impacts over the dependent variables. It may be increase or decrease the dependent
variable in a period of time or over a period of time. To reveal we use SPSS software, and
will find the influential nature of independent variables over dependent variable.
Rationale of the study

The report is assigned by our course teacher Professor Dr. Md. Abu Misir as a part of our
International Financial Management course. The topic of our report is Is Foreign Debt
a Problem for Bangladesh? Justify the Implication on Economy. By conducting this
study we can enhance our knowledge and skill to apply various research methods in
professional life on higher educational life. The report has given us a chance to raise our
quality in developing research instrument and its applications. By doing so, we can boost our
acceptability in job market and develop our real life knowledge.
Objective of the report

Primary objective
To find the impact of foreign debt in the economy of Bangladesh by the calculation of SPSS.
Secondary objective:
The term paper has the following objectives:
To find out the impact of foreign debt on every dependent variables such as inflation.
To find out the explanatory power of independent variable.
To find the impact of foreign debt in economy through historical data analysis.
Scope
There were huge scopes to work in the area of this report. Considering the dead line, the
scope and exposure of the paper has been wide-ranging. The study Is Foreign Debt a
Problem for Bangladesh? Justify the Implication on Economy has covered a scenario of
Bangladesh economy. It has shown the impact of foreign debt in economy through both
historical analysis & statistical analysis. The effect of foreign debt is clearer to us now.
Methodology
Variables
We use the following variables:
Types of variable
Dependent
Independent
.
Names of the variable

Exchange rate
Gross Domestic Product (GDP)
Inflation
Lending rate
Foreign Debt
Analysis of Data
The influential nature of the variables.
The relationship between the variables and significance on Exchange rate, GDP,
Inflation, Lending Rate.
Calculation of Coefficient, ANOVA, Correlation etc.
Statistical Tools
We use the SPSS (Statistical Package for the Social Sciences) software, Version 16.0
Sources of Data
Here the secondary sources of information were used. The secondary sources are:
Books.
Economic Relation Division.
Website.
Limitations
While conducting the report on Is Foreign Debt a Problem for Bangladesh? Justify the
Implication on Economy, some limitations were yet present there:
Because of time shortage many related area cant be focused in depth.
Recent data and information on different activities was unavailable in some cases.
We used the SPSS version 16 for unavoidable limitations.
Foreign Aid
Foreign aid refers to the transfer of goods, capital or services from an international
organization or a country to offer some benefits or help to the recipient country. This aid
comes in several forms for example; military, emergency humanitarian or economic aid. It is
aimed at providing help in terms of crisis or disaster. Foreign aid in economic terms is served
basically for infrastructural development. There are four types of foreign aid mostly practiced
and Bangladesh get all four types of aid as per its need. Those are given below:
Foreign Aid
Bilateral aid
Multilateral
aid
Tied aid
Project aid
Bilateral aid when the capital flows from a developed nation to a developing nation.
Multilateral aid when the capital flows to developing nations from a world agency such as
the World Bank.
Tied aid when funds are used to buy imports from the donor country or for a specific
project.
Project aid when the funds are used to finance a particular project.
Reasons Donor Countries DO Give Aid

Donor countries generally give aid because it is in their own interest to do so. Undoubtedly
some aid is given with humanitarian motives in mind; however, most foreign aid is given for
variety of political, strategic and economic reasons that benefit the donor countries in the
longer term.
Political Reasons
Official Development Assistance (ODA) is often designed to achieve political objectives
other than increasing prosperity in recipient countries. In the United States, national security
considerations often influence foreign-aid decisions. During the 1980s, Cold War
considerations caused a sharp escalation in U.S. aid to Central America and the Caribbean
even, as aid to Africa declined. More recently concern over Middle East instability has made
Israel, Egypt, and Jordan the largest recipients of U.S. foreign aid. Other donors have their
own objectives. For many years Sweden targeted aid toward 'progressive' societies. In France,
governments have sought to promote the maintenance and spread of French culture and the
French language as well as the preservation of French influence. In Japan, aid has historically
flowed disproportionately to neighboring Asian nations in which Japan has the greatest
commercial interests, and has often been tied to purchases of Japanese products.
Economic Reasons
Official Development Assistance (ODA) is often designed to achieve economic objectives
rather than political reasons.
Filling Gaps
Self-interest of Donor Country
Filling the gaps

Providing aid to Less Developed Countries (LDCs) ensures that the savings gap and the
foreign exchange gap are filled. For domestic investment to take place domestic savings must
also occur. If these are absent then a flow of development assistance can help finance
investment projects. Likewise, there should also be technical assistance to ensure that the
capital is efficiently used. For some economists, development is synonymous with the
creation of a sizable, modern manufacturing sector, as opposed to reliance on exports of
primary products. The international product life cycle theory suggests that as countries
industrialize they off-load more labor-intensive industries to countries in earlier stages of
industrialization. This theory provides some support for the notion that the development of
manufacturing industries frequently accompanies increasing prosperity in the developing
world. However, others argue that aid for capital investment can be anti-developmental as
more capital intensive production in countries may contribute to increasing levels of
unemployed and consequential poverty.
An inflow of foreign exchange may also enable LDCs to import foreign capital considered
necessary for economic growth and development. In the case of Zambia, where there have
been considerable shortages of foreign exchange earning due to falling commodity prices and
debt servicing, inflows of foreign exchange through aid have enabled the capital investment
needed to maintain the copper industry. It should also be mentioned however, that debt relief
would be more effective than aid in reducing the foreign exchange gap.
Self Interest of Donor Countries

Less and less development assistance is given in the form of outright grants and increasingly
interest is being charged albeit at concessionary rates. Tied aid is also becoming more
prevalent. Tied aid occurs where conditions are place by the donor upon the recipient about
what they use the aid assistance for. Usually the recipients are required to purchase the
exports of the donors. This may be a more expensive option than purchasing the capital from
sources other than the donors. Tied aid may help fill savings and foreign exchange gaps;
however, it may not always be in the best interests of the recipient country.
Distribution of Foreign Aid

Grant ($ in Million)
Purpose
Loan ($ in Million)
Total ($ in Million)
Food Aid
5,997.883
762.557
6,760.440
Commodity Aid
5,650.833
5,257.007
10,907.840
Project Aid & Budget

Support
13012.642
28,630.735
41,643.377
Total
24,661.358
34,650.299
59,311.657
Chart: Foreign Aid to Bangladesh (1971/72-2012/13)
Forms of Foreign Aid

The term 'Foreign Aid' is broad one. It refers to any money or resources that are transferred
from one country to another without expecting full repayment. Official Development
Assistance (ODA) includes all grants and concessional or soft loans that are intended to
transfer resources from More Developed Countries (MDCs) to Less Developed Countries
(LDCs) with the intention of fostering economic development. Most studies consider
concessional loans as those that have a grant element at 25% or more. It does not include
commercial or non-concessional loans, private foreign direct investment such as inward
investment by multilateral corporations, nor does it include preferential tariff reductions
offered by MDCs to LDCs enabling them easy access for their exports into the markets of the
MDCs. To be considered foreign aid a flow of funds should meet two simple criteria:
1. It should be non-commercial from the donors point of view
2. It should be concessional so that the interest and repayment is less stringent or softer
than commercial terms.
Foreign aid includes all grants and concessional or soft loans that are intended to transfer
resources from MDCs to LDCs with the intention of fostering economic development. Most
studies consider concessional loans are those that have a grant element at 25% or more.
Foreign aid can be divided into Public Development Assistance and Private Development
Assistance:
Foreign Aid
Public or Official
Development Assistance
Individual government
assistance, known as
bilateral aid
Multilateral donor
agencies such as the
IMF and World Banks
offering multilateral aid
Private Development
Assistance
Private non-governmental
organizations (NGOs)
such as the Red Cross,
Oxfam
Chart: Forms of Foreign Aid
A considerable amount of foreign aid is tied aid. Here the grants or concessionary loans have
conditions laid down by the donor country about how the money should be used. Tied aid by
source means that the recipient country receiving the aid must spend it on the exports of the
donor country. Tied aid by project means that the donor country requires the recipient
country to spend it on a specific project such a road or a dam. Often this might be to the
commercial or economic benefit of the firms in the donor country. For example their
engineers might be the designers of the project.
Understanding Foreign debt

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. One relative measurement of foreign debt safety is that foreign
exchange reserves should not be less than outstanding short-term foreign debts. Governments
can lower their foreign debts by rescheduling their obligations or simply by paying them off.
Total reserve % of total external debt in Bangladesh was last measured at 48.81 in 2012. In
our country it is less than half which shows the poor scenario of our country.
The main indicator of foreign debt is foreign debt to GDP and foreign debt to GNI.
External debt percentage of Gross national income.
Year
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
% of GNI
6.15
10.08
8.67
19.8
24.31
21.27
19.07
21.59
20.94
26.84
30.26
27.43
29.69
Year
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
% of GNI
36.65
39.98
39.12
38.39
39.94
41.08
41.32
41.43
44.46
40.22
36.2
32.62
34.05
Year
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
% of GNI
34.79
31.92
30.69
33.43
33.56
33.02
29.12
30.49
29.07
26.5
25.25
23.48
22.58
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.
It represents dependency over policy making.
Foreign Debt Percentage of GDP
Total debt as percent of GDP has been on a relatively continuous upward track until
1993-94, when it reached a peak of 53.5% of GDP. It fell to 42.8% in 1997-98, but
increased in the following year to average around 50%. It means debt has a productive
contribution to GDP also showing dependency on it.
Foreign debt as percent of GDP closely mirrored the developments in total debt until
the mid 1990s. Since then, an increasing share of the total debt has been finance by
domestic debt. From a low of about 3% of GDP in the early 1990s, it has increased to
20% of the GDP in 2007-08. It represents the growth of percentage of foreign debt
over GDP which is an alarming notification. If it gets more then foreign power will
manipulate our policies and govt.
In recent years, the share of foreign assistance was been shrinking while that of
domestic debt is on the increase. It is a praiseworthy policy taken by the Govt. but
Padma Bridge project will change the situation.
Sources of Foreign Debt

There are three sources of foreign debt. Thats are Food, Commodity & Project Aid. An
aggregated sum are as follows.
Food
In Million
Countries name
Grant
Loan
Total
OECD
3130.465
709.100
3839.565
OPEC
116.050
116.050
Multilateral agencies
2594.833
2594.833
Other Countries
156.535
53.457
209.992
Commodity
In Million $
Countries name
Grant
Loan
Total
OECD
4802.004
1842.004
6644.276
OPEC
316.108
116.888
432.996
298.671
3204.546
3503.217
Other Countries
234.050
93.301
327.351
Project Aid
In Million $
Countries name
Grant
Loan
Total
OECD
8725.216
3617.666
12342.882
OPEC
191.269
812.291
1003.560
3949.141
21142.256
24878.208
Other Countries
147.016
3058.522
3205.538
It represent our country is getting help mostly from OECD countries.

So OECD countries have more contract and willingness to invest in our country.
Factors affected by Foreign Debt
Exchange rate
The price of a nations 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.
Foreign Debt
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.
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 Analysis

Exchange rate
Comment
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.
Foreign Debt
Comment
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)
Comment
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 doesnt incorporate Housework, Volunteering, Higher Education,
crime, corruption, and change in leisure time.
Inflation CPI
Comment
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
Comment:
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.
Statistical Analysis using SPSS
The equation of regression of Exchange Rate on Foreign Debt (Impact of Foreign Debt
in Exchange Rate)
Coefficientsa
Unstandardized Coefficients
Model
B
1
(Constant)
-.630
Foreign Debt
.048
a. Dependent Variable: Exchange Rate
Std. Error
4.294
Standardized
Coefficients
Beta
.005
.858
Sig.
-.147
.884
10.415
.000
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
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
Perfect relationship
Model Summary
R Square
Adjusted R
Square
1
.858a
.736
.729
a. Predictors: (Constant), Foreign Debt
Model
Std. Error of the

Estimate
11.09133
As we find that R= 0.858 from the table. So, there exist a high degree of relationship
between the variables under the study
R2= coefficient of multiple determination

We know that if R2 is more than 50% or .50 then the independent variables are very
influential
Model Summary
R Square
Adjusted R
Square
1
.858a
.736
.729
Model
Std. Error of the

Estimate
11.09133
As we find that R2= 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
Pearson Correlation
Exchange Rate
Foreign Debt
Exchange Rate
Foreign Debt
Exchange Rate
Foreign Debt
Sig. (1-tailed)
N
Coefficientsa
Model
B
1
(Constant)
-.630
Foreign Debt
.048
Foreign Debt
1.000
.858
.
.000
41
41
Std. Error
4.294
.005
Standardized
Coefficients
Beta
.858
.858
1.000
.000
.
41
41
Sig.
-.147
.884
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.
Model
1
Regression
Residual
Total
Sum of Squares
13343.352
4797.690
ANOVAb
df
1
39
18141.042
40
Mean Square
13343.352
123.018
F
108.467
Sig.
.000a

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
Exchange Rate
Foreign Debt
40.2905
8.4452E2
21.29615
376.94008
41
41
Influential variables
Coefficientsa
Model
B
1
(Constant)
-.630
Foreign Debt
.048
Std. Error
4.294
.005
Standardized
Coefficients
Beta
.858
Sig.
-.147
.884
10.415
.000
It can be understand by beta coefficient that that the variable are influential.
The equation of regression of GDP on Foreign Debt (Impact of Foreign Debt in GDP)
Model
(Constant)
Coefficientsa
Standardized
Coefficients
B
Std. Error
Beta
-18485.207
5977.116
Foreign Debt
72.242
a. Dependent Variable: GDP (Current Price, US$)
6.476
.873
Sig.
-3.093
.004
11.155
.000
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.

Range
.01-.29
.30-.49
.50-.69
.70-.89
.90-.99
Model Summary
R Square
Adjusted R
Square
1
.873a
.761
.755
Model
Std. Error of the

Estimate
15438.94287
As we find that R= 0.873 from the table. So, there exist a high degree of relationship

influential
Model Summary
R Square
Adjusted R
Square
1
.873a
.761
.755
Model
Std. Error of the

Estimate
15438.94287
variation in the GDP. So the variables are very influential.
Correlations
Pearson Correlation
Sig. (1-tailed)
N
Coefficientsa
Model
GDP (Current Price, US$)

Foreign Debt
Foreign Debt
Foreign Debt
(Constant)
B
-18485.207
Std. Error
5977.116
Foreign Debt
72.242
6.476
GDP (Current
Price, US$)
1.000
.873
.
.000
41
41
Standardized
Coefficients
Beta
.873
Foreign Debt
.873
1.000
.000
.
41
41
Sig.
-3.093
.004
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.
Model
1
Regression
Residual
Total
Sum of Squares
2.966E10
9.296E9
ANOVAb
df
1
39
3.896E10
40
Mean Square
2.966E10
2.384E8
F
124.435
Sig.
.000a

b. Dependent Variable: GDP (Current Price, US$)
GDP are statistically significant. As the test is significant at .000 level which is less than
.05
Mean
Std. Deviation
Foreign Debt
4.2524E4
8.4452E2
31207.61011
376.94008
41
41
Coefficientsa
Model
(Constant)
B
-18485.207
Std. Error
5977.116
Foreign Debt
72.242
6.476
Standardized
Coefficients
Beta
.873
Sig.
-3.093
.004
11.155
.000
It can be understand by beta coefficient that that the variable are influential at .873.
The equation of regression of Inflation on Foreign Debt (Impact of Foreign Debt in

Inflation)
Coefficientsa
Model
B
1
(Constant)
Foreign Debt
a. Dependent Variable: Inflation CPI
4.159
Std. Error
1.630
.002
.002
Standardized
Coefficients
Beta
.267
Sig.
2.551
.017
1.384
.179
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.

Range
.01-.29
.30-.49
.50-.69
.70-.89
.90-.99
Model Summary
R Square
Adjusted R
Square
1
.267a
.071
.034
Model
Std. Error of the

Estimate
2.42172
As we find that R= 0.267 from the table. So, there exist a very low degree of relationship

influential
Model Summary
R Square
Adjusted R
Square
1
.267a
.071
.034
Model
Std. Error of the

Estimate
2.42172
variation in the inflation rate. So the variables are relatively low influential.
Correlations
Inflation CPI
Pearson Correlation
Inflation CPI
Foreign Debt
Inflation CPI
Foreign Debt
Inflation CPI
Foreign Debt
Sig. (1-tailed)
N
B
1
1.000
.267
.
.089
27
27
Coefficientsa
Model
(Constant)
Foreign Debt
Foreign Debt
4.159
Std. Error
1.630
.002
.002
.267
1.000
.089
.
27
27
Standardized
Coefficients
Beta
.267
Sig.
2.551
.017
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.
Model
1
Regression
Residual
Sum of Squares
11.228
146.618
ANOVAb
df
1
25
157.845
26
Total
Mean Square
11.228
5.865
F
1.914
Sig.
.179a

b. Dependent Variable: Inflation CPI
inflation are statistically not significant. As the test is significant at .179 level which is
more than .05
Mean
Std. Deviation
Inflation CPI
Foreign Debt
6.3204
1.0302E3
2.46394
313.21647
27
27
Coefficientsa
Model
B
1
(Constant)
Foreign Debt
4.159
Std. Error
1.630
.002
.002
Standardized
Coefficients
Beta
.267
Sig.
2.551
.017
1.384
.179
It can be understand by beta coefficient that that the variable are influential at .267 level.
The equation of regression of Lending Rate on Foreign Debt (Impact of Foreign Debt in
Lending Rate/Interest Rate)
Coefficientsa
Model
(Constant)
B
16.162
Std. Error
1.369
Foreign Debt
-.001
a. Dependent Variable: Lending Rate/Interest Rate
Standardized
Coefficients
Beta
.001
-.430
Sig.
11.802
.000
-1.349
.214
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.

Range
.01-.29
.30-.49
.50-.69
.70-.89
.90-.99
Model Summary
R Square
Adjusted R
Square
1
.430a
.185
.083
Model
Std. Error of the

Estimate
1.18377
As we find that R= 0.430 from the table. So, there exist a low degree of relationship

influential
Model Summary
R Square
Adjusted R
Square
1
.430a
.185
.083
Model
Std. Error of the

Estimate
1.18377
variation in the lending rate. So the variables are low influential.
Correlations
Pearson Correlation
Sig. (1-tailed)
N
Coefficientsa
Model
Lending Rate/Interest Rate

Foreign Debt
Foreign Debt
Foreign Debt
(Constant)
B
16.162
Std. Error
1.369
Foreign Debt
-.001
.001
Lending
Rate/Interest
Rate
1.000
-.430
.
.107
10
10
Standardized
Coefficients
Beta
-.430
Foreign Debt
-.430
1.000
.107
.
10
10
Sig.
11.802
.000
-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.
Model
1
Regression
Residual
Total
Sum of Squares
2.550
11.210
ANOVAb
df
1
8
13.760
Mean Square
2.550
1.401
F
1.820
Sig.
.214a

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
Mean
Std. Deviation
Foreign Debt
14.3850
1.2884E3
1.23649
385.92495
10
10
Coefficientsa
Model
(Constant)
B
16.162
Std. Error
1.369
Foreign Debt
-.001
.001
Standardized
Coefficients
Beta
-.430
Sig.
11.802
.000
-1.349
.214
It can be understand by beta coefficient that that the variable are influential at .214 level.
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 48.81 in 2012. In
case of % of GDP from a low of about 3% of GDP in the early 1990s, it has increased to 20%
of the GDP in 2007-08. 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
doesnt 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 exist 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 exist 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 exist 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 cant 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.

Foreign Debt Impact on Bangladesh Economy

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Foreign Debt Impact on Bangladesh Economy

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Is Foreign Debt a Problem for Bangladesh? Justify the Implication on Economy.

Professor Dr. Md. Abu Misir

Sultan Ahmed Khan

Group Name: Epimetheus

Name of the members of the group

Sultan Ahmed Khan

Md. Anik Mahmud

Md. Mehedi Hasan

Sakhawat Hosain Chowdhury

Mohammad Didarul Islam Khan

Mohammad Mahmudul Hasan

Group Representative: Sultan Ahmed Khan.

Professor Dr. Md. Abu Misir,

Sultan Ahmed Khan

Rational of the study

Objective of the study

Scope of the study

Methodology of the study

Limitations of the study

Body of the term paper

Reasons Donor Countries DO Give Aid

Distribution of Foreign Aid

Forms of Foreign Aid

Understanding Foreign Aid

Sources of Foreign Aid

Factors Affected by Foreign Debt

Rationale of the study

Objective of the report

Names of the variable

Reasons Donor Countries DO Give Aid

Filling the gaps

Self Interest of Donor Countries

Distribution of Foreign Aid

Project Aid & Budget

Chart: Foreign Aid to Bangladesh (1971/72-2012/13)

Forms of Foreign Aid

Chart: Forms of Foreign Aid

Understanding Foreign debt

Foreign Debt Percentage of GDP

Sources of Foreign Debt

It represent our country is getting help mostly from OECD countries.

Factors affected by Foreign Debt

Historical Data Analysis

GDP (Current Prices, US Dollar)

Lending Rate/interest rate

Statistical Analysis using SPSS

The equation indicates that

R= Coefficient of multiple correlation

Very low degree of relationship

Low degree of relationship

Moderate degree of relationship

High degree of relationship

Very high degree of relationship

Std. Error of the

R2= coefficient of multiple determination

Std. Error of the

As b, is significant at .048 level, there is significant relationship between foreign debt

a. Predictors: (Constant), Foreign Debt

The required equation is Y=a+bX Where, Y= GDP, a= Constant, X= Foreign Debt

The equation indicates that

R= Coefficient of multiple correlation

Very low degree of relationship

Low degree of relationship