Bangladesh’s external debt decreased by $1.43 billion in the July-December period of 2022, compared to the first half of the same year, indicating that foreign lenders are losing interest in extending financial facilities to the country due to large deferred payments.
Total external debt stood at $93.79 billion at the end of December last year, down from $95.23 billion at the end of June, show latest data from the Bangladesh Bank.
Industry insiders blamed two key factors for the phenomenon, the growing deferred payment created by the USD shortage, and increasing borrowing cost due to USD appreciation against the local currency Taka.
The private sector deferred payment stood at $689.37 million at the end of December 2022, which was at $1.01 billion at the end of June the same year, reveals central bank data.
Besides, During the July-December period of FY23, Bangladesh’s financial account stood at negative $1.09 billion, which was positive $6.89 billion compared year-on-year.
Speaking to The Business Post, former lead economist of World Bank Dhaka Office Zahid Hussain said, “External debt of Bangladesh fell as the country began facing a big crisis of USD.
“I think that most foreign borrowers will no longer roll over the credit facility due to the high amount of deferred payments, which may be the reason behind the falling trend of external debt. Foreign lenders lose confidence in local borrowers if they do not pay back on time.”
He further said, “Some people say that the foreign debt has fallen due to the rising borrowing costs, but I do not believe that because the country is now facing a USD shortage, and importers cannot pay import bills properly.
“When a country needs USD, the borrowing cost does not become a big issue.”
Bangladesh Bank Chief Economist Md Habibur Rahman said, “External debt has fallen in recent times because the private sector borrowers are now repaying their foreign loans to ease the burden of growing borrowing costs.”
Regulator data shows that private sector foreign loans stood at $24.30 billion at the end of December last year, down from $25.40 billion September. The private sector foreign loans were at $25.95 billion at the end of June last year.
The borrowers of foreign loans are under a big burden due to the rising borrowing costs, so they are focusing on repaying loans, instead of taking out more, Habibur added.
Short term private sector foreign loans have continued to fall since June last year. The amount of such loans stood at $17.75 billion at the end of June last year, which fell to $17.31 billion at the end September, and then fell further to $16.41 billion at the end of December 2022.
Another Bangladesh Bank official said, “The interest rate hike by the Federal Reserve Bank of USA was a vital reason behind the increased borrowing cost of foreign loans. The federal fund rate in the USA was between 0 and 0.25 in December of 2021.
“It was 1.50 to 1.75 in June last year, and stood at 4.25 to 4.50 in December last year.”
A Bangladesh Bank report in January this year mentioned that the significant depreciation of Taka, rising interest rates on foreign borrowings, and tight global financial conditions could trigger a severe hike in the cost of external debt and debt burden.
In another report, the World Bank had also warned that the low and middle-income countries will suffer a mounting pressure of debt servicing in 2023-24 due to the hike in private sector foreign debt, increase in interest rates, and depreciation of currencies against the greenback.
According to the International Monetary Fund’s (IMF) Global Debt Monitor 2022, Bangladesh’s private debt, loans and debt securities had occupied 38.27 per cent of the country’s GDP in 2021.
After Russia invaded Ukraine in February this year, Bangladesh witnessed a continued depreciation of Taka against the USD. The local currency devalued by 24.41 per cent against the USD last year, despite a series of initiatives to cool down the forex market.