Short-debt foreign debt in Bangladesh’s private sector is on the decline due to an increase in repayment pressure. This is evident by the fact that such loans rose to $16.41 billion at the end of last year, but has now dropped to $12.84 billion at the end of August 2023.
The decline began from January this year, hitting $15.58 billion, and then continued to slide downwards, according to a recent Bangladesh Bank report on short term private sector external debt.
Regulator data further shows that foreign investment in the private sector too is on a steady decline since February this year. When Bangladesh needs loans from foreign countries, it causes a dip in foreign investments, say insiders.
A central bank senior official, on condition of anonymity, said, “Bangladesh witnessed a decline in foreign loans as our forex reserves started to drop last year. Moreover, the inflow of remittances and export earnings decreased in the last few months as well.”
Former lead economist of the World Bank Dhaka Office Zahid Hussain said, “Bangladesh received loans from abroad, and we have to repay those on time. The data indicates that Bangladesh is repaying loans rather than receiving them.”
“Deferred payments rose due to the USD crisis. Due to a lack of confidence, Bangladesh’s private companies are not getting foreign loans despite high interest. The lenders do not have enough confidence that Bangladesh will be able to repay loans timely due to the USD crisis.”
He continued, “The situation is definitely concerning for the country’s economy. Foreign companies seek guarantee that those domestic companies will repay loans on time. This directly impacts Bangladesh's foreign reserves.
“Because the country has been facing a deficit in the balance of payments (BOP), we need foreign loans. If Bangladesh faces low foreign investments, then the forex reserve will continue to decrease.”
Hussain then pointed out, “Suppose a foreign company gets an offer from Bangladesh at 10 per cent instead of 5 per cent, they will not invest due to the USD crisis here. The key reason is that Bangladesh has been facing a greenback shortage since last year.”
The short-term debt is taken by the country's private sector from various foreign banks and institutions. According to the central bank, the country's reserves have decreased by $2 billion in a span of just one month from $23.09 billion at the end of August.
Preferring not to be named, a Bangladesh Bank senior official said, “More than 8.5 per cent interest has to be paid for short-term loans. There is a central bank rule to pay the maximum Secured Overnight Financing Rate (SOFR) plus 3.5 per cent interest on foreign loans.
“SOFR is now over 5 per cent. In 2020, it was below 1 per cent. The interest rate in the international market has increased several times. This is one of the key reasons that Bangladesh companies did not take loans.”
Another reason is the steady devaluation of local currency. The Taka has depreciated by around 13 per cent against USD in the last one year. Compared to one year ago, alongside the interest, the costs have gone up a lot due to devaluation, he added.
According to the central bank data, the amount of deferred payment was $704 million in January this year. This figure reached $940 million at the end of August.
