Rabiul Haque: There is good news for the economy of Bangladesh in the new year. The interest rate of foreign loans will decrease in the international market.
Central banks in major economies will not raise interest rates as global inflation comes under control. As a result, the interest rate of foreign loans in the international market will also decrease. This will reduce interest payments against Bangladesh’s foreign debt status.
At the same time new loans will be available at low interest. Lower interest rates on loans taken against imports will also reduce import costs somewhat. Already, interest rates on loans have started to come down.
According to sources, a large part of foreign loans are traded in the international market at the London Interbank Offer Rate or Libor rate. The LIBOR rate on six-month dollar bonds is used as the basis for foreign debt interest rates. The loan interest rate is determined by adding 2 to 4 percent to this.
In December 2019 before Corona, the Libor rate for six-month dollar bonds was 2 percent. During the Corona period, on August 11, 2021, this rate decreased to a minimum of 15 percent. From mid-2022 onwards, it started to increase again.
On August 29 of the recent outgoing year, the rate increased to a maximum of 5.93 percent. Since then, that rate has started to decline. On December 29, this rate further decreased to 5.58 percent. Last May 15, this rate fell to 4.83 percent.
As the interest rate on the current foreign debt will come down due to the reduction in Libor rate, the interest payment burden will also come down. At the same time the debt status will decrease. At the same time, the entrepreneurs of the country will be motivated to take more loans due to the reduction in interest rates. This will reduce the pressure in the foreign exchange market.
Meanwhile, some loans are being taken through the Secured Overnight Financing Rate (SOFOR) launched in the US currency market. Its rate has also started to decrease. Earlier this rate was 5.40 percent. Now it has reduced to 4.39 percent.
Meanwhile, the US central bank, the Federal Reserve System (Fed), has said that they will not raise policy interest rates if inflation does not rise again. This rate has also started to decrease in Europe. As a result, the IMF has given a glimpse that the global interest rate will decrease this year. According to them, by the end of this year, the interest rate of global debt will go to the level before the corona epidemic.
Before Corona, Libor rate was 2 percent. The agency said the global debt crisis will also ease somewhat this year. As a result, the flow of credit will increase.
At present the interest rate is fixed by adding 2 to 4 percent to the LIBOR rate. Accordingly, the interest rate stands at 7.58 percent to 9.58 percent. Which is too much. If the interest rate comes down to the pre-corona epidemic level, the interest rate of foreign loans will decrease from 4.58 percent to 6.58 percent.
Meanwhile, the interest rate of about 70 percent of Bangladesh’s foreign loans is market-based. That is, when the interest rate is there, it has to be paid. Due to this, more interest has to be paid at present. In 2022, Bangladesh has to pay $104 million for debt interest. Had to pay more last year. Because the interest rate reached the highest level in that year.
The total foreign debt status of the country was $98.11 billion last June. Last September it decreased to $96.55 million. In the three months under review, the loan balance decreased by $156 million. However, the status has increased compared to January last year. In January last year, the position was $90.05 billion.
Buyer’s credit taken against imports in loans stood at $6.55 billion last October. Suspended arrears against imports are $860 million and foreign back-to-back LC liabilities are $950 million.
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