The amount of private sector short-term foreign loans increased in April, as businesses turned to overseas loans considering rising interest rates and liquidity crunch in the local banking sector.
According to Bangladesh Bank data, the amount of short-term foreign loans rose to $11.1 billion in April compared with that of $11.04 billion in March, $11.07 billion in February and $11.25 billion in January.
The foreign short-term loans had been declining since May 2023, when they stood at $13.95 billion.
Bankers attributed this shift to the increasing cost of local currency loans after the central bank lifted the 9 per cent ceiling on lending rates.
Besides, the banking sector has been struggling with a severe liquidity crunch.
Therefore, businesses may seek foreign loans to meet their immediate funding needs, bankers said.
On July 1, 2023, the Bangladesh Bank introduced a new interest rate framework, asking banks to determine lending rates by adding a 3 per cent corridor to the six-month moving average interest rate (SMART) of the 182-day treasury bill.
This system gradually raised the lending rate to 13.55 per cent by April.
However, on May 8, the central bank replaced this system with a market-based interest rate determination system, leading most banks to offer loans at 14-15 per cent interest rates.
In April, short-term loans and foreign back-to-back letters of credit (LCs) increased to $3,017 million and $977 million respectively compared with those of $2,931 million and $955 million in the previous month.
Debt services also rose to $1.86 billion in April from $1.85 billion in March, while deferred payments decreased to $814 million from $824 million.
The persistent dollar crisis in the country may have compelled businesses to opt for foreign loans despite high costs and risks of further devaluation of the local currency, bankers said.
On May 8, the dollar rate jumped to Tk 117 from Tk 110 in a single day. In July 2021, the exchange rate per dollar was Tk 84.80.
Bangladesh鈥檚 economy has been struggling with high inflation, a dollar crisis, depletion of foreign exchange reserves, an energy crisis, and capital outflow.
All these issues are linked to the acute dollar shortage on the market.
According to International Monetary Fund guidelines, Bangladesh鈥檚 gross foreign exchange reserves plunged to $19.2 billion on June 12.
The country鈥檚 external debts crossed $100 billion at the end of December 2023, up from $98 billion in June 2023.
The Bangladesh Bank data shows a 52-per cent increase in foreign debts, reaching $100.6 billion in December 2023 from $65.27 billion in June 2020.
This rapid growth in foreign debts has raised concerns about the country鈥檚 ability to manage its debt obligations.