Higher repayments making a dent in foreign currency reserves

Short-term foreign debts in the private sector have declined every month since January as repayments outpaced fresh loans, contributing to the depletion of foreign currency reserves in Bangladesh.

According to the Bangladesh Bank, short-term foreign loans fell 3.16 per cent to $12.43 billion in September, which was $12.84 billion in August.

Short-term loans mature within three to nine months and account for 63.5 per cent of the total private sector borrowing from foreign sources.

But owing to the strained US dollar stockpile, the sharp depreciation of the local currency and higher global interest rates, such debts are being shunned by entrepreneurs.

At the beginning of January, the short-term foreign debt was $16.42 billion in the private sector. Since then, it declined by 24.29 per cent.

During the nine-month period, entrepreneurs borrowed $19.55 billion and repaid $23.99 billion in the form of principal amount and interest.

The private sector is not interested in taking loans in dollars due to the massive depreciation of the taka.

Experts said the interest rate of foreign loans was 2 per cent a few years ago.

Now entrepreneurs can’t get the dollar loan even though they are willing to pay 10 per cent.

The National Board of Revenue has imposed a 20 per cent tax on foreign debts.

This is adding insult to injury as the tax will raise the cost of funds, so no one will be keen to secure foreign loans.

This was another factor for the fall in debts. This policy has been imposed at the wrong time.

BB figures showed the country’s total foreign reserves stood at $20.66 billion on November 1, down from $20.89 billion on October 25.

The country had forex reserves of about $40.7 billion in August 2021 and $33.4 billion at the end of 2021-22.

The deficit of the financial account of the balance of payments was $3.93 billion in the first quarter of the current fiscal year, which began in June.

In contrast, it was in a surplus of $839 million in the same period a year prior.

We must say the wrong policy taken by the government, misappropriation of funds, capital flights, corruption, absence of accountability, and fall down of the governance system due to political failure have pushed the economy near the verge of free fall.

It is now a matter of time before the complete bankruptcy of Bangladesh’s economy, ideally dependent on RMG export and remittance.