Net foreign financing dropped by 67 per cent in July-November of the financial year 2024-25 compared with the same period in the previous year, as loan repayments exceeded new inflows amid countrywide unrests.
According to Bangladesh Bank data, net foreign financing stood at Tk 5,540 crore during the July-November period of FY25, marking a decline of Tk 11,086 crore from the same period of the past fiscal year.
The significant drop is attributed to the government鈥檚 repayment of a substantial amount of overdue foreign loans during this time.
Following the political change on August 5, 2024, Bangladesh Bank cleared $3.3 billion, or nearly 90 per cent, of overdue foreign payments.
Additionally, foreign lenders appear to have slowed loan disbursements and tightened lending conditions, leading to higher refinancing costs.
Political uncertainty after the change in government has also contributed to the decline in external financing.
Widespread unrest, disruptions in business activity, and uncertainty over economic policies have made foreign lenders more cautious about disbursing funds.
The depreciation of the Taka against the US dollar has further worsened the situation, increasing the cost of foreign loan repayments.
The interbank exchange rate has surged by nearly 30 per cent in the past two years, reaching Tk聽122 per dollar.
The drop in net foreign financing raises concerns about the government鈥檚 ability to fund its budget deficit and maintain economic stability. With limited access to external funding, the government has increasingly relied on domestic borrowing, further tightening liquidity in the banking sector.
This has slowed private sector investment and hindered efforts to revive economic growth, which is already projected to remain sluggish.
Private sector credit growth has been declining since November 2022, falling to 7.3 per cent in December 2024, according latest monetary policy statement announced by BB on Monday.
Government net borrowing from the banking system stood at Tk聽14,642.54 crore in July-December, accounting for 14.8 per cent of the revised target for FY25, it said.
The government lowered its bank borrowing target for the fiscal year to Tk 99,000 crore from an initial target of Tk 1.37 lakh crore, it added.
During this period, it borrowed a net Tk 69,056.1 crore from scheduled banks while repaying Tk 54,413.6 crore to Bangladesh Bank.
As the central bank ceased money printing through devolvement, the government鈥檚 borrowing now depends heavily on scheduled banks.
Borrowing from National Savings Certificates also saw a significant decline, with net sales falling by Tk聽15,588.6 crore in July-November of FY25, compared with a decline of Tk聽5,539.0 crore in the same period of FY24.
The banking sector has been facing a liquidity crunch since June 2021, which has persisted into the first half of FY25.
Several factors have contributed to this tight liquidity situation, including increased dollar sales by Bangladesh Bank, slow loan recovery, rising non-performing loans (NPLs), sluggish deposit growth, and increased cash withdrawals by the public due to a loss of confidence in the banking sector following widespread irregularities and scams, particularly involving some Shariah-based banks, the MPS read.
The implementation of contractionary monetary policies to curb inflation has further restricted liquidity in the banking sector, adding to the economic challenges, it said.
