For the first time since December 2020, private sector borrowing from external sources declined as the appetite among firms eroded for increased borrowing costs.
Firms’ total external debt dropped 2 per cent to $25.4 billion at the end of September 2022 from 25.95 billion in June. At the same time, external debt in the public sector decreased as well.
Meanwhile, the private sector’s foreign debt grew 29 per cent year-on-year from $ 19.68 billion in September 2021, showed Bangladesh Bank data.
However, analysts say the pressure of repaying loans will not ease soon, which is needed to cut the demand for US dollar and bring stability in the foreign exchange market.
This is a reflection of the lack of demand from the private sector to borrow from external sources for their disappointment with the exchange rate, said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
He then said many borrowers suffered losses as they had to repay foreign loans by purchasing US dollar at higher prices than their estimates due to the depreciation of taka against the greenback.
Besides, the interest of foreign lenders to lend to Bangladesh’s firms has declined as there is demand for funds elsewhere, namely the US.
Foreign loans availed by the private sector in Bangladesh had been swelling fast since 2020 and the upward trend continued until June 2022, creating a major headache for the country’s economy at a time when its foreign exchange reserves are plummeting.
Mansur, a former economist at the International Monetary Fund, said the pressure of repaying loans is going to be over fast despite the decline of debt position.
Apart from the fall in private sector debt, the government’s debt declined too, leading to an overall fall in Bangladesh’s total external debt.
Bangladesh’s gross external debt dropped 3 per cent to $92.69 billion at the end of September 2022 from $95.23 billion three months ago, as per Bangladesh Bank data.
Mansur said the fall in the flow of foreign loans for the public sector is not a good sign. Foreign loans are necessary for the government as budget support and to reduce pressure on the foreign exchange market.
“It has implications for the economy. The government is borrowing from the central bank, which could stoke inflation,” he said. “It could become a destabilising factor for the economy.”
Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), said overall external debt position of the private sector did not change to a high extent.
“The pressure of repayment is not going to ease,” he said, recommending keeping an eye on the impact of the repayment on the dollar market.
It is necessary to categorise the types of loans into loans that are foreign exchange generating and loans that would require payment by purchasing foreign currencies, he added.
