Rising cost of external capital cause of concern, say experts
Industry Desk: A stronger US dollar is usually grody news for emerging market economies with heavy dollar-denominated debt. And Bangladesh is no exception.
In this country, the corporate sector has borrowed heavily in foreign currencies from external sources at lower interest rates. A stronger dollar has now made their foreign debt expensive, hitting them really hard as they struggle to tide over the Covid-induced economic slowdown.
Those entrepreneurs who took hassle-free loans from abroad some five years ago — when the interest rate on bank loans in Bangladesh was more than 12% — are now facing the wrath of the appreciating dollar, having forced to count 10% more on money they borrowed at just 3-4% interest.
The approved debt from external sources for Bangladesh’s private sector stood at USD 14,003.95 million as of June 2021, of which USD 9,601.27 million had been repaid along with USD 677.37 million interest.
In the January to March quarter of the last financial year, the approved external debt for the private sector was USD 617.95 million, while it declined to USD 230.81 million in the last quarter of 2020-21 fiscal, as per Bangladesh Bank (BB) statistics.
Experts say the size of the Bangladeshi economy has expanded and industrial production has increased significantly over the past decade, but financing for domestic investment still remains a big challenge. In addition, a large number of entrepreneurs are still leaning on foreign loans.
The loan money from external sources comes to the country in dollars or any other currency and it has to be repaid in that foreign currency. For this reason, if the exchange rate of a foreign currency goes up, then the borrowers will have to buy it at a higher price, according to the experts.
Five year ago in April 2016, one US dollar was sold in Bangladesh at Tk76.60. The rates remained the same for almost three years. However, Bangladesh taka has lost 10% more value over the past two years.
The loan from foreign sources was sanctioned in US dollars, but the entrepreneurs get it in Bangladeshi currency (taka) from the banking system. Here also, the commission of Tk0.20 to Tk0.30 per dollar is deducted by the banks. Again, when buying dollars to repay the loan, the entrepreneurs have to buy an additional Tk 0.20 to Tk0.30.
The exchange rate of taka fell, post-Unlock. And the price of one US dollar has jumped to Tk85.90 in the banking channel while it’s Tk 93 in the kerb market. This is this month’s rate.
Former governor of Bangladesh Bank Salehuddin Ahmed told UNB, “Foreign loans will reduce the profits of entrepreneurs as the dollar appreciates. The external debt will not be attractive now as earlier the loan has to be repaid in dollars.” The central bank of Bangladesh creates pressure to keep the dollar rate stable in the banking system, he said, advocating curbs on kerb markets to keep the exchange rates stable.
Mohammad Shams-ul Islam, managing director and chief executive officer of Agrani Bank, said that loan disbursement of local banks have also increased in recent times.
“Banks are lending money at 8-9% interest. The dollar is currently on an uptrend. If the dollar continues to rise, then foreign debts could be risky for Bangladeshi entrepreneurs,” he added.
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