M K Alam; Dbarta24 – Private sector credit growth in Bangladesh has hit a historic low, weighed down by sluggish investment, declining exports, currency depreciation, and subdued domestic demand.
While domestic credit expansion has dropped to record lows, short-term foreign borrowing by the private sector is mirroring a similar contraction, with debt repayments outstripping new inflows.
According to the latest data from Bangladesh Bank, short-term foreign debt fell to $10.25 billion at the end of June. This marks a steady slide from $10.33 billion in April and $10.47 billion in January.
The current trajectory underscores a sharp reversal from the post-pandemic surge, when short-term foreign debt spiked nearly 65% in 2021 to reach $15.46 billion, before peaking at $16.42 billion in 2022.
Exchange rate volatility subsequently prompted businesses to deleverage, pushing debt balances down to $11.79 billion by the end of 2023 and $10.13 billion by late 2024.
Structural Bottlenecks and High Costs Dampen Loan Appetite
Traders rely heavily on short-term foreign loans—such as buyer’s and supplier’s credit—to import essential raw materials and capital machinery.
Although recent political conditions and foreign exchange fluctuations have shown signs of stabilizing, structural hurdles remain.
Ongoing disruptions in power and gas supplies, alongside persistent law and order challenges, continue to restrict industrial expansion and export performance.
Central bank policy has also contributed to the deceleration. In May, Bangladesh Bank reduced the interest rate ceiling on short-term foreign borrowing.
Businesses can now borrow at the Secured Overnight Financing Rate (SOFR) plus a maximum margin of 3.0%, down from the previous cap of SOFR plus 4.0%.
Alongside tighter oversight, central bank officials noted that entrepreneurs are hesitant to expand production capacities given the uncertain business climate.
Total External Debt Dynamics
The overall foreign debt burden for Bangladesh has contracted across both public and private portfolios.
Total external debt fell to $110.93 billion by the end of March, down from $110.35 billion in December. Within this total:
-
Public Sector Foreign Debt: Stood at $90.91 billion in March, compared to $93.46 billion in December.
-
Private Sector Foreign Debt: Decreased slightly from $20.06 billion to $20.02 billion over the same three-month span.
Commentators point to sluggish broader macroeconomic activity as the primary driver behind the reduced appetite for foreign credit.
“Traders utilize supplier’s and buyer’s credit to import capital machinery and raw materials. However, due to the lack of strong momentum in overall economic activity recently, such borrowing is declining. If domestic and foreign investments pick up, imports of capital machinery and raw materials will rise, increasing overall credit demand.”— Mohammed Nurul Amin, Chairman of Bangladesh Krishi Bank and prominent banker
Amin added that government interventions—including a proposed low-interest BDT 60,000 crore stimulus package aimed at reviving closed factories and boosting small and medium enterprises (SMEs)—could provide the necessary impetus to restore private sector confidence and credit uptake moving forward.