Lower capacity to meet foreign debt obligations now

The forex reserve to foreign debt ratio dropped substantially in the past couple of years, indicating that the country has a smaller cushion of foreign reserves to meet foreign debt obligations.

According to Bangladesh Bank data, foreign exchange reserves to foreign debt plummeted to 21.7Z% at the end of 2023 from 35% in 2022 and 50.7% in 2021.

In just four years, the country’s foreign debt surged by $37 billion in 2023, up from $63 billion in 2019.

It was $96.5 billion in 2022, $91 billion in 2021 and $73 billion in 2020.

This continued growth in foreign debt has caused per capita debt to increase to $589 in 2023 from $362.10 in 2019.

Forex reserves, according to International Monetary Fund (IMF) guidelines, plunged to $21.86 billion in 2023.

Using the traditional calculation of Bangladesh Bank, reserves were $46 billion in 2021 and $33.74 billion in 2022.

A country’s external debt refers to the total amount of money that the country owes to foreign creditors, such as other countries, international organizations, and foreign private entities. It includes both public and private debt obligations.

Bangladesh usually receives foreign loans from multilateral institutions such as the World Bank, the IMF, the Asian Development Bank, the Islamic Development Bank, and major overseas commercial banks.

The devaluation of the local currency against the US dollar has made the country’s interest payment against the foreign loans costly.

The interbank dollar rate soared to Tk117.5 each after the central bank raised the greenback rate by Tk7 each on May 9.

The exchange rate per dollar in the country was Tk84.81 in June 2021, Tk93.45 in June 2022 and Tk106 in June 2023.

Severe dollar shortage in the market has compelled the central bank to continue selling dollars to banks from its reserves, which has also contributed to the reduction in the country’s foreign exchange reserves.

The central bank has been selling dollars to commercial banks, with more than $32 billion sold over the past 34 months.

This included $11.6 billion allocated to banks in July-April of FY24, $13.5 billion in FY23 and $7.62 billion in FY22.