Private sector’s foreign debt falls further

Short-term private sector foreign debt has continued to fall since January of this year, with new disbursements being outweighed by repayments each month this year except May.

In July, short-term foreign debt in the private sector stood at $13.38 billion, down 2 percent from $13.65 billion in June, as per the latest data from the Bangladesh Bank (BB). In January, that figure was $15.58 billion.

The private sector took short-term loans from foreign sources amounting to $2.27 billion in July, when the total repayment against previous disbursals stood at $2.60 billion, BB data showed.

In July, short-term foreign debt in the private sector stood at $13.38 billion, down 2 percent from $13.65 billion in June

Foreign lenders have lost confidence in lending to Bangladeshi companies as the country's forex reserves continue to fall, opined Zahid Hussain, former lead economist at World Bank's Dhaka office.

He said that fresh disbursement of foreign loans was lower than repayments, which were why financial account dipped into the negatives after a long time.

The financial account is the component of the country's balance of payments that covers claims or liabilities to non-residents concerning financial assets. It includes foreign direct investment, medium and long-term loans, trade credit, net aid flows, portfolio investment and reserve assets.

Bangladesh's financial account at the end of fiscal 2022-23 showed a deficit of $2.1 billion, standing in stark contrast to a $15.5 billion surplus a year earlier.

Hussain added that global lenders were uncomfortable lending to local companies as international credit rating agencies, including Moody's, downgraded Bangladesh's long-term ratings. He added that private companies may also be discouraged from availing foreign loans due to source tax on foreign loans.

Hussain opined that it was a bad omen that new foreign loan disbursement had slowed down compared to higher repayments, especially given the backdrop of falling forex reserves.

The forex reserve stood at $23.06 billion on August 30 and is projected to slip below the $23 billion mark this week after a $1.20 billion payment to the Asian Clearing Union for imports from eight Asian countries.