Short-term foreign debt decreasing

Mahfuz Emran: Due to the low interest rates on foreign loans due to the global recession and high interest rates in banks in the country, foreign loans once increased rapidly. The availability of loans in the private sector, especially in export-oriented industries, increases the tendency towards foreign sources. However, due to the increase in the exchange rate of the dollar, the amount of the loan in local currency has increased. Again, in the international market, especially in the post-corona period, these loans with easy terms have become difficult as the interest rate increases rapidly.
All in all, businessmen are not comfortable with foreign loans. Due to this, the tendency of repayment is more than taking foreign loans. This picture has emerged in a report of Bangladesh Bank. It can be seen that in the last six months (January-June), the short-term foreign debt of the private sector has decreased by $2.76 billion. During this time foreign loans were taken $13.692 billion and paid $16.423 billion.
According to Bangladesh Bank, the amount of short-term foreign loans to the private sector in December last year was $16.418 billion. Of this, buyers’ credit was $9.567 billion, deferred payment $689 million, short-term loan $4.486 billion, foreign back-to-back LC $897 million and other short-term liabilities $779 million.
Short-term foreign debt to the private sector fell to $14.086 billion in March. Among them, buyers’ credit is $8.567 billion, deferred payment is $786 million, short-term loan is $3.725 billion, foreign back-to-back LC is $773 million and other short- term liabilities are $667 million. At the end of June, short-term foreign debt further decreased to $13.656 billion. Among them, buyers’ credit is $7.698 billion, deferred payment is $969 million, short-term loan is $3.539 billion, foreign back-to-back LC is $846 million and other short-term liabilities are $604 million.
An analysis of the debt picture shows that only deferred payment has increased in the external debt of the private sector. Many LCs could not be settled on time mainly due to dollar crunch. Hence deferred payment has increased. Besides, back-to-back LC decreased in March but slightly increased in June. However, the amount of back-to-back LCs is still low compared to last December.
According to central bank officials, short-term foreign debt of the private sector declined in 2018 over the past decade. Since then, it has increased every year. But in 2021, it jumped to 69 percent, a record increase. However, this debt has started to decrease from the third quarter of last year.
Analysis of the data of the last decade shows that in 2014, the short-term foreign debt of the private sector was only $3.779 billion. In 2022, it increased to $16.419 billion. In other words, the foreign debt of the private sector has almost quadrupled in eight years.
In 2015, the amount of short-term foreign debt of the private sector stood at $4.699 billion, $6.157 billion in 2016, $8.885 billion in 2017, $7.282 billion in 2018, $8.210 billion in 2019 and $9.135 billion in 2020. In 2021, after a record increase, it stood at $15.463 billion.
According to sources, external debt of the private sector started to decline in the third quarter of 2022. Because central banks around the world keep raising interest rates to control inflation. But the private sector in Bangladesh faces another problem. Many LCs had to be closed as the government strictly controlled the sending of dollars out of the country to maintain foreign exchange reserves.
The former top economist of the Dhaka office of the World Bank. Zahid Hossain told Daily Industry in this regard, ‘Our reputation abroad has been seriously damaged due to the closure of LC. Global rating agency Moody’s downgraded Bangladesh’s financial sector rating in December last year. Recently the S&P downgraded the rating. As a result, the financing opportunities for the private sector have become very limited.
He also said, “In the meantime, interest rates abroad have increased a lot. Moody’s downgrade and the country’s bad reputation have made interest rates higher for Bangladeshi borrowers. In addition to continued devaluation of the currency, foreign debt may not be very favorable for the private sector of the country. That is why the interest in foreign loans is decreasing.
Meanwhile, Bangladesh Bank has fixed interest rate limits for foreign commercial loans to the private sector. This is lower than the prevailing rates in the international market. However, experts feel that the reduction in foreign debt of the private sector does not mean that the pressure on reserves and the exchange rate will decrease.
Dr. Zahid Hossain said, “There is a deficit in the financial and current accounts of the balance of payments. If there is a deficit in the current account, it can be financed with a surplus in the financial account. As a result, there will be no pressure on reserves or foreign exchange. But whenever there is a deficit in the financial and current accounts, commercial banks will have to collect foreign exchange and Bangladesh Bank will have to use its reserves, which will increase the pressure on reserves.