Private sector sees lower foreign loan inflow, higher repayments in January amid financial strain

The inflow of short-term foreign loans to the private sector continued to decline in January, with more money being sent out for the repayment of existing loans, especially in terms of interest and principal payments.

The Bangladesh Bank released data on Thursday showing that while the private sector received $1.68 billion in foreign loans in January, $2.10 billion had to be paid back in the same period.

This means that $422 million more was paid than the loans received.

The trend of higher repayments compared with the loans received has continued for the past two years.

In 2023, repayments exceeded loan inflows by $6 billion, and in 2024, repayments were $2 billion higher than the loans received.

In 2023, the private sector received $25.79 billion in foreign loans but paid back $31.13 billion, including interest.

In 2024, the sector received $21.04 billion in loans but repaid $23.16 billion.

Factors such as the dollar crisis, increasing dollar prices, exchange rate instability, reserve shortages, and high interest rates have deterred businesses from taking new foreign loans.

The rising dollar value has increased operational costs for businesses, leading to less interest in short-term borrowing from foreign sources.

Moreover, international credit rating agencies downgraded Bangladesh's credit rating, which has reduced the interest of investors in providing loans.

Zahid Hussain, former chief economist of the World Bank's Dhaka office, expressed concerns about the impact of the downgrade on foreign loans.

He told bdnews24.com, “The foreign loan repayment record over the last two years has not been good. This has increased the risk perception, leading rating agencies to downgrade the country’s overall financial status. Delays in paying bills, such as for airlines’ ticket revenues and electricity sector bills, have been widely noted.”

He added, “Delays in bill payments abroad have been ongoing for over a year. New loans are harder to secure now, as no one is willing to lend.”

Economist Zahid also said, “The global interest rates have decreased by almost 100 basis points. Six months ago, the SOFR (Secured Overnight Financing Rate) rate was 5.33 percent, but now it stands at 4.33 percent.

“However, for Bangladesh, this decrease hasn’t been reflected, as the risk premium on interest rates has risen due to the downgrade in credit ratings,” he said.

He likened Bangladesh's situation to the fall of Sri Lanka's cricket team, once highly regarded but no longer in its prime.

A senior official from Bangladesh Bank remarked that when repayments exceed loan inflows, pressure is created on reserves.

For the economy, the private sector needs access to short-term loans at this time, and efforts must be made to stabilise the value of the dollar, he said.

Otherwise, investors will reduce their investments, he added.