Foreign short-term loan inflows to the private sector in Bangladesh dropped in 2024, continuing a downward trend from the previous year due to rising interest rates, currency devaluation concerns, and political instability.
The demand for short-term foreign loans in Bangladesh’s private sector has significantly decreased in 2024, with a nearly $5 billion drop compared to the previous year. According to Bangladesh Bank data, foreign loans to the private sector totaled $21.04 billion by December 2024, down from $25.8 billion in the previous year, marking a 4.47% decrease or 18.44% year-on-year drop.
Several factors have contributed to this decline, including increased interest rates on US Treasury bills and bonds due to global inflation, fears over the Bangladesh Taka’s devaluation, and a negative downgrade in the country’s credit rating. Additionally, political instability has led many businesses to shy away from borrowing foreign loans.
In 2024, the private sector repaid $23.16 billion in loans, exceeding new loan disbursements by $2.12 billion. This represents a relief from the higher loan repayment pressure seen in 2023, when repayments exceeded new loans by $4.63 billion.
Short-term foreign loans are typically used for importing capital machinery and other equipment, known as buyer’s credit, and are commonly taken by banks to settle import obligations. However, due to higher interest rates and fluctuations in exchange rates, many businesses have opted not to take loans or instead focused on using dollars to pay off previous debts.
Liberty News’ economical correspondent states that experts suggest that the decline in foreign loan inflows is also due to foreign lenders being hesitant to provide loans due to Bangladesh’s negative credit rating and the volatility in currency and interest rates. This trend contrasts with the record influx of $25 billion in remittances during the 2020-2021 fiscal year, when the global interest rates were near zero, and businesses took advantage of low-cost loans.
LND/BAIZID
