Bangladesh’s foreign debt reaches 99 billion dollars

2.19 times increase in six years

Rafiqul Islam Azad:

The amount of foreign debt status of Bangladesh reached to 99 billion dollars at the end of the outgoing financial year with the increase of foreign debt by 3.23 billion dollars in the last three months.

According to updated report of Bangladesh Bank, the foreign debt of both private and public sectors has increased in the last quarter of last financial year of 2022-2023. Most of the debt increased in the public sector.

Analysis of the data shows that foreign debt has grown at the fastest rate in the last few years. In six years, this loan has increased to 2.19 times. Out of this, the largest increase in debt is in the fiscal year of 2021-22.

Sources said, the total foreign debt in the public and private sectors of the country was 95.71 billion dollars at the end of March 2023. The amount increased to 98.94 billion dollars at the end of June.  With this, the total amount of foreign debt increased by 3.71 billion dollars in one year. The foreign debt position was 95.23 billion dollars at the end of June last year.

The foreign debt status of the private sector of the country was 22.18 billion dollars at the end of March 2023 while the amount of this loan stood at 22.25 billion dollars at the end of June. In other words, the foreign debt of the private sector increased by 75.98 million dollars in the last three months, according to the report.

According to the central bank data, among the foreign loans taken by the private sector, 9.51 billion dollars are trade credit loans. Among them, the highest 7.69 billion dollars is Buyers Credit. Businessmen have taken this loan from foreign banks to import capital goods and services. Loans under deferred payment terms are $969 million and foreign back-to-back LC loans are $846 million. In addition, the foreign debt position as direct short-term loans is 3.53 billion dollars. Out of this, the private sector’s offshore banking unit’s loan amount is 2.75 billion dollars while the long-term debt of the private sector stands at 8.6 billion dollars.

The sector stakeholders said that volatility has started in the dollar market since last year, which has not yet decreased. The government and Bangladesh Bank have made several plans to increase foreign loans. The government signed agreements with the IMF (International Monetary Fund), World Bank and ADB (Asian Development Bank) to take loans from them.

Besides, Bangladesh Bank is also trying to increase foreign loans to the private sector. But the banks are not showing interest as the dollar market is still volatile. Banks are more focused on repayment of previous loans. Therefore, the short-term debt of the private sector is not increasing. The entrepreneurs are not taking loans due to the high interest rates of foreign loans. Thus, new foreign loans to the private sector are not increasing.

A top official of a private bank said that the interest rate of foreign loans has increased a lot. Thus, entrepreneurs do not want to bring loans at high interest rates and foreign new loans are not coming, he added.

The official said that the instability of the dollar has not yet ended. In the last one year, Taka has depreciated by 25 percent against the dollar. Banks are not showing interest due to this instability. Apart from this, foreign banks do not want to give loans due to the country’s rating and the outlook of the banking sector being negative.

Meanwhile, public sector debt has increased by 3.14 billion dollars in the last three months. The foreign debt status of this sector was 73.53 billion dollars at the end of last March while it increased to 76.67 billion dollars at the end of June. The debt includes direct government debt of $64.57 billion, all of which is long-term. The remaining 12.10 billion dollars have been borrowed by different government organizations and institutions.

Dr Zahid Hussain, a former lead economist of the World Bank’s Dhaka office, told this correspondent that taking foreign loan is necessary to meet the ongoing dollar crisis and carryout development projects in the country.

“We have to see the performance of foreign loans and as to how much the dollar crisis has been reduced,” he said.

Dr Zahid further said different international development partners including the World Bank provide loan based on development project. We can evaluate the impacts of increase of debt after completion of the projects, he added.

An expert said, the government wants to deal with the current crisis with quick loans. So they are getting it from any source, domestic and foreign. Another two billion dollars can be taken by next December.

He said the government’s debt is increasing but in the current crisis there is a need for foreign loans.

According to data analysis, the amount of external debt for the financial year 2016-17 was 45.18 billion dollars. It increased by 10.83 billion dollars to 56.01 billion dollars in the following financial year (2017-18). The foreign debt increased by 6.62 billion to 62.63 billion in 2018-19 financial year while by 5.96 billion to 68.59 billion in 2019-20 financial year, by 12.98 billion to 81.57 billion in 2021-21 financial year, by 13.66 billion to 95.23 billion in 2021-22 financial year and by only 3.71 billion to 98.94 billion in the financial year 2022-23.

Analysts say that there was stagnation in the global economic activity in the post-corona year. Then the interest rate of foreign loans decreased a lot. At that time the demand for dollars also decreased. Many countries then increased debt repayments. But it was exceptional in Bangladesh. At that time, Bangladesh Bank provided an opportunity to extend the term of the loan through policy assistance. By relaxing the loan repayment terms. Businessmen also borrow heavily from abroad due to low interest and easy terms. As a result, a record amount of debt increased in 2021.