Bangladesh’s foreign exchange reserves are steadily depleting because of short-term foreign debt servicing, and repayments of LC liabilities deferred from previous financial years. The country should try to reschedule such loans to slow down the downward spiral of reserves.
Addressing a webinar titled “Economic Crisis of Bangladesh and Foreign Debt,” organised by the Forum for Bangladesh Studies on Saturday, researchers and economists say the ongoing crisis will not trigger a famine, but raise the number of hungry people in Bangladesh.
Zia Hasan, project researcher of the German Federal Ministry of Education and Research, presented the keynote.
Quoting Bangladesh Bank data, he pointed out, “Bangladesh repaid $23.4 billion in foreign debt this calendar year. A major part of this debt is short-term foreign loans. LC dues were not paid properly during the last two years due to the Covid-19 pandemic.
“As a result, the amount of short term foreign debt increased.”
Zia added, “At the end of the last financial year, the amount of deferred LC stood at $33.86 billion. Repayment of liabilities during the July-September period increased the LC settlements by $5.4 billion in FY23.
“This is the key reason behind the ongoing depletion of reserves. The coming months will increase the debt repayment pressure and the amount of reserves will also decrease further.”
In this context, Executive Director of Policy Research Institute (PRI) Ahsan H Mansur said, “Due to the massive increase in import payments during the last financial year, such liabilities have been created. Repayment pressure will increase in the coming days.
Dhaka University Professor MM Akash said, “The authorities concerned should monitor what kind of products are actually entering Bangladesh against the LCs. Products that are overpriced and cost a lot of USD should be identified.
Meanwhile, Ahsan Mansur said, “The opening of LCs is dropping, and settlements will also come down towards the end of this year. But we must save the reserves at any cost. For this, remittances and exports should be increased.
“Now the reserves are only $26 billion, and we do not have the ability to repay the debt from here. That is why we have to take the opportunity to defer the short term loans. In that case, however, the loan costs may rise due to the increase in interest rates and additional fees.”
MM Akash said, “As the import expenses of three months can still be met with the existing reserves, I think Bangladesh is not in crisis now, but moving towards economic headwinds. There will be no famine because we grow our staple food rice ourselves.
“Food and Agriculture Organisation’s (FAO) prediction also says that rice production in Bangladesh will increase next year. The problem is that the number of hungry people will increase. Recession will lower income, purchasing power, and inequality will increase.”
Regarding the International Monetary Fund (IMF) loan, these two economists said if Bangladesh manages to take this loan out, it will send a positive message to other foreign lenders. As a result, deferred benefits of short-term foreign loans can be taken.
PRI’s Mansur said, “Trust of the debtors towards us will increase. Then maybe the borrowers will not face so much pressure to repay loans. Besides, assistance from the World Bank, ADB and JICA will also increase.”
However, MM Akash thinks that the IMF loan will not be of much use without first resolving the country’s capital flight issue first. “Taking IMF loans without solving long-term problems will be like pouring water into a broken pot,” he said.
Economists and researchers also point out the government must ensure an uninterrupted electricity supply to the production sectors – especially to the agro and export-oriented industries.
They also spoke in favour of lifting the interest rate cap.
