Private sector foreign loan on the decline

Short-term foreign debts in the private sector have declined every month since January as repayments outpaced fresh loans, contributing to the depletion of foreign currency reserves of Bangladesh, official figures showed.

According to the Bangladesh Bank, short-term foreign loans fell 3.16 percent to $12.43 billion in September. It was $12.84 billion in August.

Short-term loans mature within three to nine months and account for 63.5 percent of the total private sector borrowing from foreign sources.

But owing to the strained US dollar stockpile, the sharp depreciation of the local currency and higher global interest rates, such debts are being shunned by entrepreneurs.

At the beginning of January, the short-term foreign debt was $16.42 billion in the private sector. Since then, it declined by 24.29 percent.

During the nine-month period, entrepreneurs borrowed $19.55 billion and repaid $23.99 billion in the form of principal amount and interest.

The trend of higher repayments compared to fresh borrowing has persisted since January.

"The private sector is not interested in taking loans in dollars due to the massive depreciation of the taka," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.

He said the interest rate of foreign loans was 2 percent a few years ago. Now entrepreneurs can't get the dollar loan even though they are willing to pay 10 percent.

According to the former official of the International Monetary Fund, the National Board of Revenue has imposed a 20 percent tax on foreign debts.

"This is adding insults to injury as the tax will raise the cost of funds, so no one will be keen to secure foreign loans."

"This was another factor for the fall in debts. This policy has been imposed at the wrong time. Were it imposed five years ago, the situation would have been better."

In 2021, the private sector availed $33.96 billion in short-term financing from foreign lenders and repayments totalled $29.15 billion.

The repayments stood at $36.73 billion last year against fresh loans of $37.26 billion.

Central bank officials say the higher repayments compared to fresh borrowing are harming the country's foreign currency reserves.

BB figures showed the country's total foreign reserves stood at $20.66 billion on November 1, down from $20.89 billion on October 25.

The country had forex reserves of about $40.7 billion in August 2021 and $33.4 billion at the end of 2021-22, according to a document of the IMF.

Mansur said the reserves had surged not because of the current account surplus but because of the financial account surplus.

"This means the reserves piled up riding on debts. Now, the debt is being repaid. As a result, the financial account has turned negative and the reserves have been hit."

The deficit of the financial account of the balance of payments was $3.93 billion in the first quarter of the current fiscal year, which began in June. In contrast, it was in the surplus of $839 million in the same period a year prior, BB data showed.

Following the central bank's measures aimed at limiting imports to stop the slide of the reserves, Bangladesh's imports fell 22.47 percent in the July-August period of the current fiscal year. It was down 15.81 percent in the last fiscal year of 2022-23, which ended on June 30.