Short-term corporate borrowing from external lenders has reversed a months-long decline, rising slightly to $11.40 billion as of June, according to central bank data, as firms seek to steer domestic economic challenges and tap into stabilising global financial conditions.
According to businesspeople and bankers, a combination of factors is driving the uptick in short-term foreign debt.
Domestically, businesses are wrestling with inconsistent energy supplies, higher borrowing costs and foreign exchange volatility. Meanwhile, easing import restrictions and stabilising global interest rates have made overseas borrowing more attractive.
While the June data points to a possible shift in borrowing patterns, businesses caution against reading too much into a single month's figures.
The foreign debt figure had been falling steadily, reaching $12.43 billion in September and $11.79 billion in December 2023. The fall continued into early 2024, with the outstanding balance dropping to $11.25 billion in January and $11.04 billion in March.
The outstanding balance of short-term external credit taken by private sector firms stood at $13.66 billion in June 2023, according to the Bangladesh Bank.
However, it rose in June this year, reaching $11.40 billion, according to the central bank.
The United Arab Emirates (UAE) was the largest creditor for short-term private external debt, with $2.25 billion, followed by Singapore $1.88 billion, Hong Kong $1.05 billion, China $0.96 billion, India $0.74 billion and the United Kingdom $0.72 billion.
On condition of anonymity, a Bangladesh Bank official said global interest rates have begun to stabilise, while domestic funding has become more difficult due to tight monetary policy.
"This might be encouraging private sector firms to borrow from abroad, leading to the slight increase in short-term external debt."
Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said the private sector has faced multiple challenges, including the energy crisis, rising funding costs, a volatile foreign exchange market and disruptions to the global supply chain caused by the Russia-Ukraine war.
As a result, businesses are delaying expansion plans, Mr Hatem added.
"Still the latest BB figures show a slight increase in short-term foreign borrowing in April. This is interesting," he said.
"But it would be premature to comment based on data from a single month. To understand the real trend, we need to observe data for at least three to four months," the business leader added.
A chief financial officer (CFO) of a private commercial bank, speaking on condition of anonymity, said a large portion of short-term external borrowing is used for trade financing. Import restrictions have eased slightly since last Ramadan and Eid.
While global interest rates against the US dollar have stabilised, the domestic foreign exchange market situation is completely different, which could encourage businesses to seek overseas funds, the CFO added.
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