Sudden currency shock increased corporate sector’s liabilities by Tk 1 lakh crore

The sudden exchange rate depreciation of as much as 45 percent has increased the liabilities of the corporate sector by almost Tk 1 lakh crore, said Ahsan H Mansur, executive director of the Policy Research Institute.

The currency shock forced the companies to take additional provisions and losses of this magnitude eroding the corporate sector profitability, the economist said while addressing a session of the Annual BIDS Conference on Development today.

The Bangladesh Institute of Development Studies (BIDS) is hosting a three-day flagship event at Lakeshore Hotel in Dhaka.

Mansur said as the private sector lost its interest in foreign borrowing, inflows stopped, and outward payments pressure increased, leading to a loss of reserves and accumulation of unsettled foreign payments.

"The improvement in the CAB (current account balance), primarily through import compression, is important but could not reverse the loss of reserves."

The outstanding $12 billion of short-term debt is a sword hanging over Bangladesh, he added.

He also said the policy of fixed exchange rate in an environment of ultra-low interest rates globally, created incentives for the domestic firms to borrow in foreign currency without regard to the potential exchange rate risk.

The surge in private sector foreign debt to almost $26 billion was a manifestation of this phenomenon, Mansur said.