Bangladesh's private-sector foreign borrowings seem squeezing, with short-term debt stock having dropped to US$11.25 billion until last January, prompting economists to predict further adverse impact on economic activity.
Latest analyses of the state of financing exposes two cardinal factors: corporates postponing business-expansion plans and creditors getting hesitant in extending funds in view of the country's forex-reserves position.
Official data showed, on a year-on-year basis, the outstanding balance of dollar-denominated debts decreased by $4.58 billion as the amount was $15.83 billion in January 2023.
The short-term overseas debt slides as businesses postpone their market-expansion plans amid hovering uncertainties both on domestic and global markets, according to the private-sector players.
Such ebb tide in capital inflow stokes fears of resultant contraction of industrial production and employment generation in the $460-billion- plus economy driven by the private sector.
Economists and analysts see this downward cycle as one reason for the persisting volatility on the domestic market because of depreciation of the local currency against the greenback and repayment risks amid forex dearth.
According to statistics available with Bangladesh Bank (BB), the outstanding balance of short-term external credits taken by the private players stood at $15.83 billion in January 2023. Thereafter, it dropped to $14.08 billion in March, $13.36 billion in July, $12.43 billion in September and $11.79 billion in December 2023, according to the latest available data.
In terms of creditor-country-wise short-term private external debts, Singapore topped the list with $2.04 billion followed by the United Arab Emirates $1.97 billion, Hong Kong $0.92 billion, China $0.88 billion, the United Kingdom $0.71 billion, India 0.70 billion, the United States of America $0.63 billion and Germany $0.56 billion.
However, the central bank's officials are taking the downturn in private sector's one-year-long overseas borrowing as a blessing in disguise as it would lessen pressure on the country's dwindling foreign-exchange reserves.
Seeking anonymity, a BB official says, "It is a good sign for the country that its overseas liabilities keep declining that would lessen pressure on the forex reserves to some extent."
Asked whether the ongoing dollar dearth poses any problem as far as repayment of the debts is concerned, the central banker said things started improving as the earnings from remittance and export receivables are slowly increasing while import orders plummeting significantly.
Talking to the FE, Executive President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mohammad Hatem said they were planning to put more money into business in early 2022 when the export growth of clothing industry found a rebound. "Within couple of months, the Russia-Ukraine war broke out, disrupting the global macroeconomic order."
As a spillover impact, it is affecting the macroeconomic situation of Bangladesh as well, and it makes the overall situation not conducive to investment, according to him.
The manufacturers have been struggling to operate their production units on a full scale because of gas and power outages. "Then, why people will invest under such situation? That's why not only the volume of overseas debt but also the private-sector credit growth is falling continuously," the business leader said.
According to the BB data, the demand for formal credit by the private sector from the country's banking sector dropped to 9.95 per cent in January 2024 from 10.13 per cent recorded in the previous month (December 2023).
The chief financial officer (CFO) of a private commercial bank says global lenders might consider the risk of repayment before lending to private-sector players in the country where availability of the foreign currencies still remains a concern.
"This could be a reason behind the falling trend in private-sector short- term overseas borrowing," the banker adds about the pulls and pushes.
When contacted, founding chairman of local think-tank Policy Exchange of Bangladesh Dr M. Masrur Reaz said the ongoing import restrictions and energy disruptions slowed down the demand for working capital and trade financing from both external and internal sources.
On the other hand, the economist said, lack of confidence among some of the global lenders in view of Bangladesh's current macroeconomic situation might dampen the overseas credit flow.
"They (global lenders) are lending less, or not giving credits to Bangladeshi entrepreneurs," he added.
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