Staff Reporter :
The private sector short-term foreign loans in the country sharply declined in 2023 putting further stress on the country’s financial account.
According to the recent Bangladesh Bank data, the short-term foreign loans amounted to 25.80 billion in 2023.
However, the country repaid $31 billion last year, exceeding the received amount by $5.3 billion
In 2022, the short-term foreign loan inflow within the private sector was $37.25 billion reflecting 31 percent decrease or $11.45 billion slashed compared to the previous year’s receipt.
There was a surplus of $525 million in the inflow of short-term loans compared to repayments in 2022.
The Short-term loans refer to funds borrowed by private sector businesses and banks from external sources for a duration not exceeding one year.
Importers borrow from foreign lenders, mostly for purchasing capital machinery, under a financial arrangement commonly referred to as “buyer’s credit”.
Banks take short-term trade loans from foreign sources to settle their external payment obligations.
Meanwhile, short-term foreign borrowing by banks decreased to $2.8 billion at the end of December last year from $4.3 billion in January of the same year, according to central bank data.
Experts said the decline in short-term loans to businesses prioritizing loan repayments and facing challenges in obtaining new foreign loans due to outstanding loan amounts and reduced confidence from foreign institutions.
The interest rate in the international market has increased By a significant margin in recent times as Secured Overnight Financing Rate (SOFR) rate has exceeded 5.5 percent which was below 1 per cent in 2020 encouraged Bangladeshi borrowers not to take new loans, they added.
Another reason for the fall in loans from the external sector could be the huge capital losses faced by borrowers due to the depreciation of the taka against the US dollar. The local currency has lost its value by about 30 percent in the past two years, experts added.
As a result of private sector foreign loan decrease and the increased repayments the financial account of the country experienced a deficit of $2 billion in FY23, marking the first occurrence in the last decade. This contrasts with the surplus of $16.6 billion recorded in FY22.
Zahid Hussain, the former lead economist of The World Bank’s Dhaka office, said the decreasing loan inflow and repaying foreign loan putting further pressure on the country’s forex market results an increasing financial account deficit.
