Due to reduced external credit flow to the private sector, Bangladesh’s foreign debt dropped by $1.56 billion to $96.54 billion at the end of this September, compared to $98.10 billion recorded back in June the same year.
The country’s external credit flow stood at $92.91 billion in September 2022.
Published on Thursday, a Bangladesh Bank report titled “External Sector Debt of Bangladesh” further reveals that the particular figure stood at $96.52 billion and $95.73 billion at the end of December 2022 and March 2023 respectively.
Speaking to The Business Post, Policy Research Institute Executive Director Ahsan H Mansur said, “Private sector credit is decreasing due to two reasons. First, the figure indicates the private sector’s external debt declined more than the government sector.
“Currently, the government is repaying $1 billion in private sector external debt. Second, the private sector external debt is not cheap anymore. The problem is the exchange rate volatility. Due to this reason the private sector is facing a problem, because costs have increased.”
Commenting on the issue, former lead economist of World Bank Dhaka Office Dr Zahid Hussain said, “The short-term private sector debt affected more than one sector. The country’s private sectors are not getting loans from foreign sources.
“The current (Secured Overnight Financing Rate) SOFR rate is 5.3 per cent, plus a 3.5 per cent interest rate. So, the external debt is not cheap right now.”
He added, “The private sector is seeking loans, but the foreign countries are not interested. The airline companies could not repay their loans due to the USD crisis in the country. Many loans got deferred. These factors are monitored by the foreign nation.
“They have confidence issues about Bangladesh. Besides, the private sector was affected by Moody’s downgrade of the credit rating of Bangladesh. This rating was poor in the country's banking sector.”
Hussain then pointed out, “The country has not tackled the USD crisis yet. As a result the central bank imposed many austerity measures against the opening of letters of credit (LC).
“The central bank told the International Monetary Policy (IMF) that the market-based USD rate is applicable from September. But we are yet to see any kind of measures taken by the regulator, and the USD volatility is still going on.”
He stated, “We have heard from many sources that the central bank is going to start the "Crawling Peg" mechanism in the last quarter of FY24. This mechanism is effective or not, I cannot tell.
“The Bangladesh Bank is not going for the market-based USD rate. The regulator should fix the problem early.”
According to the Bangladesh Bank report, at the end of September this year, the private sector foreign debt position declined by $97 million to $21.28 billion, compared to $22.25 billion this June.
However, the public sector foreign debt amount has decreased. At the end of this June, this debt amount was $75.85 billion, compared to $75.26 billion at the end of September same year.
The government has set a foreign loan borrowing target of Tk 1.27 lakh crore, which is around $12 billion, to cover the budget deficit for FY24.
The international credit rating agency Moody's recently downgraded Bangladesh’s credit rating, placing it at B1 from the previous Ba3 category. As a result, both the availability and the cost of foreign loans are increasing.
