Private sector sees decline in short-term foreign loans in March, steadies at $11B

Private sector short-term foreign borrowing in Bangladesh saw a slight decline in March, falling to $11.04 billion from $11.07 billion in February and $11.25 billion in January, according to Bangladesh Bank data. 

This trend has persisted since December, when short-term foreign loans were at $11.79 billion, marking a decline from previous months. Buyer’s credit also dropped to $5.69 billion in March, down from $5.77 billion in February.

Banking experts attribute this decrease to businesses prioritizing debt repayment over new borrowing, citing challenges in securing new foreign loans and a cautious approach from foreign institutions. 

Despite the declining trend, short-term foreign borrowing has stabilized around $11 billion for the past three months. Debt servicing also decreased, dropping to $1.93 billion in February from $3.11 billion in December. Other indicators of foreign borrowing, including deferred payments and foreign back-to-back LC, also saw declines in March compared to February.

Bangladesh's external debts surpassed $100 billion by the end of December 2023, up from $98 billion in June 2023. Experts warned that this rapid increase in foreign debt could strain the country's finances, emphasizing the need for prudent resource management and sustainable economic development to reduce reliance on foreign borrowing.

The depreciation of the local currency against the US dollar has exacerbated the situation, making interest payments on foreign loans more expensive. According to International Monetary Fund guidelines, Bangladesh's gross foreign exchange reserves dropped to $19.9 billion on May 2. 

However, import payments for the July-February period of the financial year 2023-24 decreased by 15.36% compared to the same period in the previous financial year, reaching $40.88 billion. 

This decline can be attributed to various government and central bank initiatives aimed at reducing imports, particularly of luxury goods.