Corporate borrowing from external lenders to meet their needs squeezes significantly with the stock of short-term overseas debts having dropped to $11.19 billion as of last August, as entrepreneurs make a pause in business expansion.
Officials and money-market analysts say such continuous decline in private-sector foreign debt, despite interest rates on the global market stabilising and marginal easing of import compression on the domestic market, is 'not a good sign' for the South Asian economy.
Apart from prevailing energy crisis facing the industrial hubs and depreciation of the local currency against the American greenback, the economic stalemate following recent mass uprising that led to the fall of the Sheikh Hasina regime in early August prompted the private entrepreneurs to be very conservative regarding expansion of their businesses, according to them.
According to the latest statistics of Bangladesh Bank (BB), the outstanding balance of short-term external credits taken by the private players stood at $13.95 billion in May 2023. Thereafter started a slide, having dropped to $13.36 billion in July, $12.43 billion in September, $11.97 billion in November 2023, $11.25 billion in January 2024, and $11.14 billion in April, according to the latest available data.
In June last, the stock of one-year-long foreign borrowings by the private entrepreneurs made a significant upturn to $11.40 billion. But the following month (July) saw slides again with the figure having dropped to $11.32 billion.
In terms of creditor-country-wise short-term private external debts, the United Arab Emirates topped the list with $1.98 billion followed by Singapore $1.94 billion, Hong Kong $1.04 billion, China $0.89 billion, Germany $0.77 billion and India $0.70 billion.
However, central bank's officials see the drop as 'a good sign' for the economy for the reason that it will help lessen the country's debt liabilities.
Seeking anonymity, a BB official said the fall in overseas debt would certainly relieve pressure on the forex reserves to some extent.
He said the private-sector- debt buildup was expected to increase because interest rates on the global market have been stabilising since May last. And it had increased significantly since June 2024 when the stock of short-term overseas debts rose to $11.40 billion.
But it started dropping after July when the country witnessed buildup of the recent student-mass uprising that ultimately led to the fall of the Sheikh Hasina government on August 05, 2024.
The central banker said the chaos associated with the changeover in state power might prompt the private- sector players to be very careful as far as their business-expansion plans are concerned.
"This could be a major reason behind the continuous ebb in private- sector overseas borrowing," he said.
Talking to the FE, Executive President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mohammad Hatem has said the manufacturers have been struggling to operate their production units on a full scale because of gas and power outages.
On the other hand, the business leader said, "the July-August uprising left the overall economic activities "almost at a standstill". "Then, why people will invest under such situation? That's why the volume of overseas debt as well as the domestic borrowing by the private entrepreneurs went down."
According to the BB data, the growth in credit flow to the private sector came down to 9.86 per cent in August 2024 year on year from 10.13 per cent a month ago.
Dr M Masrur Reaz, an economist and chairman of the Policy Exchange of Bangladesh, says despite favourable condition externally for lower borrowing costs, the private- sector players did not take the opportunity due to severe disruptions to supply chains and production particularly in the industrial hubs because of the mass movement from mid-July to early August.
"There were also too many post-movement uncertainties like governance, law and order and resumption of business activities, which probably forced the entrepreneurs to defer their investment and business-expansion plans," he says about reasons for the pause.
jubairfe1980@gmail.com