The private sector's debt from external sources will further increase repayment pressure on Bangladesh, the International Monetary Fund (IMF) observed on Monday.
In a meeting with the Economic Relations Division (ERD) on the same day, the IMF said Bangladesh would not have faced the problem if only the public sector and state institutions had foreign debts, a source said.
As all the debt has to be repaid in dollars, the currency crisis is being exacerbated by the foreign debts of the private sector.
The IMF also said the $48 billion foreign aid in the pipeline from different development partners should be disbursed as soon as possible for project implementation. This would help mitigate the dollar crisis to a certain extent.
A four-member delegation led by Rahul Anand, the IMF mission chief to Bangladesh, held the meeting, participated by ERD Secretary Sharifa Khan and additional secretaries Abdul Baki and Md Mostafizur Rahman, among other officials.
The total outstanding external debt of the private sector grew from $19.68 billion in September 2021 to $25.95 billion in June 2022, according to the Bangladesh Bank.
Furthermore, a detailed look at the data shows foreign debt in the private sector has almost doubled in the last five years.
In comparison, the outstanding foreign debt of the government till June 2022 stands at $56.6 billion while the debt of various state institutions is about $16.74 billion.
The ERD meeting with the IMF is part of the current $4.5 billion loan talks, which Bangladesh has sought from the money lender.
Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said, "When private sectors went to foreign banks, they could get the loans at a nominal interest of only 3% while the exchange rate was also stable."
At the same time, the interest rate in the country was more than 9%, so private organisations opted for foreign options.
Meanwhile, Bangladesh's foreign debt is rising due to rising per capita income. Interest rates on most foreign loans also exceed 2%, but they may go up even higher.
The SOFR and LIBOR rates are now more than 2.5% and more than 3.5% respectively, which was around less than 1% even a year ago.
Another worry is that Federal Reserve officials will hike interest rates to 5% by March 2023, Bloomberg reported based on a survey of economists.
The Federal Open Market Committee will raise rates by 75 basis points for a fourth consecutive meeting.
The Fed forecasts released at the September meeting showed rates reaching 4.4% this year and 4.6% next year, before cuts in 2024, the report added.
When the Fed rate rises, the SOFR rate rises too. As a result, borrowing will also become costly as the interest rate increases, analysts told The Business Standard.
The IMF delegation arrived on a 15-day visit last week for the loan talks.
The team has already held meetings with various institutions, among which are the Bangladesh Bank, the National Board of Revenue, the Finance Division, the Bangladesh Bureau of Statistics, the Energy and Mineral Resources Division, the Bangladesh Bureau of Statistics, Power Division and Petrobangla.
The ERD officials said the IMF meeting held on Monday turned into a courtesy meeting as the ERD had held a meeting with the organisation on 31 October.
The IMF delegation emphasised debt repayment and took an estimate of debt servicing over the next few years.
The IMF also inquired about hard and soft loans.
Besides, the delegation also discussed Bangladesh's ability to repay debts in the coming recession and how the rise in the dollar principal, the linebar and the SOFR rate had affected loan repayments.
ERD officials said the agency also gathered information on flexible loans, commercial loans, loans of state-owned institutions, current loan amounts and future estimates.
At last week's meeting held with the ERD, the IMF expressed concern that Bangladesh's external debt repayment pressure will increase.
According to the IMF, in the current global economic situation, Bangladesh's exports and remittances are likely to decrease, which will affect loan repayment.
According to ERD data, Bangladesh has to pay $2.77 billion, $3.3 billion and $4.02 billion respectively for the next three fiscal years.
In fiscal year 2021-22, the government disbursed a total of $2 billion among various development agencies.
IMF holds meeting with Bida
In another meeting, the IMF delegation yesterday asked the Bangladesh Investment Development Authority (Bida) about the investment environment, situation of investment sectors and future plans of Bangladesh.
At the meeting in the presence of Bida Executive Chairman Lokman Hossain Mia, the IMF also wanted to know what steps Bangladesh had taken to increase foreign direct investment (FDI) and what has been done to build environmentally-friendly compliant factories.
They also took stock of Bangladesh's policy on renewable energy.
The IMF mission, led by Rahul Anand, included its Macrofinancial Unit (Strategy, policy, and Review Department) economist Richard Varghese alongside six others, who met representatives from the Bangladesh Export Processing Zones Authority (Bepza) and the Bangladesh Economic Zones Authority (Beza).
After the meeting, Bida Executive Chairman Lokman Hossain Mia told TBS that the IMF had expressed satisfaction with the steps taken by Bangladesh.
He said the delegation was informed that FDI was increasing in Bangladesh and was set to grow from last year's $3 billion to about $10 billion in 2025.
Lokman said the IMF team was informed of Bangladesh's various successes – 100 new economic zones, the Padma Bridge built with its own funds and increasing purchasing power of people, among others – and the country's position as an "investment heaven" was highlighted.
"We proposed that the IMF promote Bangladesh's success [in foreign media]. They said they would consider it."