$12 billion foreign debt repayment uncertain

Experts fear serious economic debacle

Farhad Chowdhury: One of the reasons for the problems that have arisen in the country’s economy at present is the dollar crisis. Although there has been a dollar crisis for a long time, the dollar crisis in the foreign exchange market has taken a strong shape. Cash dollars in commercial banks are scarce. On the other hand, the sale of dollars in curb market or open market is very less. Even if the price is high.
During this dollar crisis, the public and private sector of Bangladesh will have to pay foreign debt of about $12 billion by December this year. Due to dwindling foreign exchange reserves and dollar crisis, foreign debt repayment may become complicated, the stakeholders fear. There are also doubts about how much new credit will be available as international organizations Moody’s Investors Service and S&P Global have downgraded Bangladesh’s credit rating.
Generally, due to reducing the credit quality of such companies, they may have to pay higher interest rates than the international market in getting foreign loans.
Incidentally, Bangladesh received a loan of about $15 billion in the last financial year, but this type of loan has not come so far this year. Again, due to the Russia-Ukraine war, the global crisis is increasing the interest on foreign loans and also shortening the repayment period.
As a result, the debt repayment pressure has also increased compared to the last financial year. Meanwhile, businessmen are not worried about the dollar crisis. Entrepreneurs are still facing problems in opening import letters of credit (LC) due to dollar crisis. Due to the dollar crisis and price increase, production, investment and trade are having a negative impact. This results in high inflation. People are struggling to meet the increased cost of goods. All in all, this situation is endangering the economy.
Analysts say there are several projects in foreign debt that have been overspent. Bangladesh will have to pay the price.
Decreasing remittances
According to the data of the Bureau of Manpower Employment and Training (BMET), 11 lakh 35 thousand laborers went abroad from Bangladesh last year, which was 6 lakh 17 thousand in the previous year. In total, more than 2 crore 11 lakh workers of Bangladesh are working abroad. All of whom send money to the country. But the amount of remittance is not increasing. According to the updated information of Bangladesh Bank, expatriates sent remittances worth about $1.6 billion at the end of August. But last year, remittances came in this month of $203 million.
That is, compared to last year, remittances in August decreased by 21.48 percent. Remittances are falling at a time when Bangladesh Bank is in crisis with foreign exchange reserves. The dollar crisis in the country has become extreme, which has a negative impact on the economy.
Executive Director of Policy Research Institute Ahsan H. Mansoor said that the dollar crisis and price increase are having a negative impact on production, investment and trade. This results in high inflation. People are struggling to meet the increased cost of goods. All in all, this situation is endangering the economy.
It is known that since the middle of last month, the price of the dollar in the carb market has increased dramatically. At the beginning of the month, the dollar carb, which was selling at Tk 113 to Tk 114, rose to Tk 117 to Tk 118. In some cases, there have been cases of selling dollars for a maximum of Tk 120.
Meanwhile, in the money changers located in Motijheel, Dilkusha and Paltan areas of the capital, it can be seen that most of the offices are closed. Some offices are open but there are no people. No one is selling dollars. There are allegations that many of the money changers traders are secretly buying and selling dollars. A money changer’s official said, Bangladesh Bank has instructed to trade Tk 110.75per dollars. But they could not buy any dollar for Tk 110.75. So could not sell.
The former governor of Bangladesh Bank Dr.Salehuddin Ahmed said that the import of capital equipment and intermediate goods has decreased due to the dollar crisis. This causes problems in industry and trade and reduces employment. The cost of borrowing from abroad has increased. The only way out from here is to increase the dollar supply.
Meanwhile, the country’s economy is under pressure due to the reserve crisis. Reserves fell to $21.45 billion in the latest accounts of the central bank.
Expert opinion
Of the $12 billion, the government has to repay more than $3 billion, officials say. The rest of the debt is about $9 billion of the private sector. But the crisis is not only in the repayment of foreign loans, but also in taking the profits of the foreign companies that have invested here because of the dollar crisis.
Economists believe that both the public and private sectors will face a major challenge in repaying the debt by December in such a situation. In any case, if the net reserve cannot be increased, there is not much way out of this situation.
In such a context, State Minister for Planning Shamsul Alam tells the media that there is nothing to worry or worry about debt repayment. It is true that there is some tension with the dollar, but the government is aware of the situation.
Officials of the Central Bank and Department of Economic Relations hinted that some initiatives have been taken by the government to deal with the situation. That is, the central bank is trying to extend the repayment period of some loans.
Ahsan H. Mansoor said, it will be difficult to predict where the situation will end if the current debt can’t be agreed to be rescheduled informally through communication and discussion with the lenders.
According to the sources of Bangladesh Bank, the amount of public-private foreign loans of the country till March this year stood at $95.71 billion. In the first half of the current fiscal year (July-December), the $319.6 million of loans received from the government and government guarantees are $243 million. The remaining $76 million is interest.
Of the more than $7 billion in private sector debt, $3 billion was repaid in the first six months of this year. $1.62 billion in long-term debt of the private sector has to be paid by December this year. And about $6 billion more dollars in short-term debt has to be paid.
It is also reported that another $17 billion is to be paid by December. But the speed of loan in the first half of this year can get a maximum of $10-$11 billion during July-December.
According to the data of Bangladesh Bank, till 2022, the repayment was less than the amount of short-term loans taken by private sector entrepreneurs from abroad.
In 2019, private sector entrepreneurs borrowed $2,478.8 million, while paying $2,358.96 million in interest and principal. In the following year, repayments were $1,891 million against $1,893 million in debt. In 2021, against the debt of $3,396 million, $2,915 million were repaid. And in 2022, private sector entrepreneurs took loans of $3,725 million, against which they paid $3,673 million in interest and principal.
It has been seen that since the beginning of this year, private entrepreneurs have to repay more than the amount of foreign loans they are bringing. In January this year, private sector entrepreneurs took short-term loans of $218 million from abroad. But this month they have to pay more than $3.2 billion in interest and principal of the loan. Repayments were $265.62 million against $182.5 million in debt in February. Thus, every month till June, foreign loan disbursements were higher than receipts.
In the first six months of this year, private sector entrepreneurs took a total of $1,369 million in foreign loans, against which they paid $1,674 million. As a result, in the first six months of this year, more than $305 million have to be paid off. Banks of the country have to provide this additional $305 million to repay the debt. Bangladesh Bank has predicted that the amount of foreign debt of Bangladesh will be $115 billion by the end of 2023. And at the end of 2024, the amount of foreign debt will stand at $130 billion.
Ahsan H. Mansoor, executive director of the Policy Research Institute, said that the dollar crisis in the country is unlikely to be resolved soon. Therefore, there is no option to extend or reschedule these loans by talking to the stakeholders.