Nation's overseas borrowing increases by a significant $7.35 billion within a span of three months
In the June quarter of this year, Bangladesh's total external debt, encompassing both public and private sectors, reached an impressive, yet significant figure of $112.15 billion. This increase was primarily driven by an uptick in public-sector debt.
International lenders extended loans totalling over 1 billion US dollars to Bangladesh in June. Notable among these were the International Monetary Fund (IMF), Asian Infrastructure Investment Bank (AIIB), Japan, and OPEC funds. The US Federal Reserve also cut interest rates by 25 basis points, bringing them to a range of 4-4.25%.
However, the slowdown in new investment in the country has resulted in a reduction of both foreign borrowing and bank credit flows to the private sector. As a result, foreign debt in the private sector declined by $110 million during the same period, standing at $19.77 billion by the end of the June quarter, down from $19.88 billion in March.
CPD's Mustafizur Rahman noted that most foreign loans in the private sector come as trade finance, but due to the taka's depreciation, many businesses have suffered losses and are taking fewer foreign loans due to high interest rates on short-term loans. Economists believe that the depreciation of the taka against the US dollar has increased operating costs for many businesses, causing them to avoid foreign loans.
On the other hand, foreign loans in Bangladesh's public sector must be used efficiently to avoid becoming a burden, as they carry certain risks such as high interest rates and very short grace periods. Fund release from multiple donor agencies has been the main driver behind the rise in public-sector external debt, which rose by $7.35 billion from the end of the March quarter to the end of the June quarter.
Budgetary support of around $3 billion was received from the World Bank, ADB, and AIIB, which were added to the government's foreign debt. The IMF alone provided $1.3 billion in loans to Bangladesh.
Mohammad Ali, managing director of Rupali Bank, stated that low new investment is the main reason for the decline in private-sector foreign loans. He emphasised the importance of proper use of foreign loans to benefit the economy, a sentiment shared by a senior Bangladesh Bank official.
Zahid Hussain highlighted that development project funds should contribute to economic growth through proper revenue collection or production to avoid straining the economy. Profitable projects like the Metro Rail and Padma Bridge are crucial for ensuring revenue collection, while caution is needed for some ongoing projects that risk losses.
These inflows are strengthening the overall economy and have helped stabilize the currency market, keeping the dollar exchange rate relatively steady. Despite the challenges, Bangladesh continues to navigate its economic landscape, seeking to strike a balance between growth and sustainability.
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