Loan write-offs in Bangladesh's banking sector have more than tripled in the first half of the year, reaching Tk4,513 crore ($530 million) [386ce210]. The increasing amount of defaulted loans in banks is directly leading to a corresponding increase in written-off loans [386ce210]. By the end of June, the total written-off loans amounted to Tk67,721 crore ($7.9 billion) [386ce210]. The banking sector's total default loan reached Tk1,56,039 crore ($18.3 billion) in June, accounting for 10.11% of the total outstanding loans [386ce210]. Additionally, Bangladesh's foreign loan interest payments have tripled in the July-September quarter of the current fiscal year, reaching Tk4,147 crore ($378 million), compared to Tk1,297 crore ($137 million) in the same period last year [0146443c]. The government aims to secure $8.977 billion in loan commitments in the current fiscal year, with Japan providing the most commitments at $1.5 billion in the first quarter [0146443c]. However, the disbursement of foreign loans has decreased by 5% compared to the same period last year, due to a lack of capacity to implement development projects [0146443c]. The government's expenses on interest payments rose 22.14 percent year-on-year to Tk 92,538 crore in the last fiscal year due mainly to a higher cost of borrowing [2ae271c4]. The ongoing volatility in the foreign exchange market and the liquidity shortage in the banking sector are major factors contributing to the increase in interest rates [2ae271c4]. The interest expenditure of the government is increasing faster than the revenue growth, posing a challenge [2ae271c4].
Bangladesh's external debt has exceeded $100 billion, equal to 22% of its GDP [21a02099]. The debt has grown by 14% over the last six years, outpacing GDP growth [21a02099]. The rise in foreign debt is attributed to borrowing for the Rooppur Nuclear Power Plant [21a02099]. The country's debt-GDP ratio is lower than neighboring economies, but the concern lies in the abnormal growth rate [21a02099]. The government must address the abnormal growth of debt by increasing tax contributions from the superrich [21a02099]. Concerns arise over the private sector's share of the debt and the decline in foreign exchange reserves [21a02099]. Bangladesh's debt effectiveness is poor due to bureaucratic tentacles, project delays, and corruption [21a02099]. The ultimate determinant of debt effectiveness is how loans are used productively [21a02099]. The burden of foreign debt has increased due to the devaluation of the taka [21a02099]. Bangladesh must address these financial worries to safeguard its economy [21a02099].
Finance Secretary Khairuzzaman Mozumder expressed concerns about Bangladesh's graduation from the list of least-developed countries (LDC) during a speech at the National Board of Revenue (NBR) event [56268383]. He mentioned that after graduating from LDC status in 2026, Bangladesh would no longer benefit from duty-free exports under preferential tariffs [56268383]. Efforts are being made to extend this period, but the finance secretary acknowledged the impending loss of competitiveness and the potential need to cut import tariffs, which could hamper import tax revenue [56268383]. The scheduled graduation from LDC status in 2026 poses a significant challenge for Bangladesh, particularly in losing duty-free export benefits to major destinations, including the European Union [56268383]. Economists have stressed the importance of reducing tariffs in advance to prepare for the potential sudden drop in tariffs due to free trade agreements (FTAs) [56268383]. Khairuzzaman highlighted the need for revenue sector reforms and proposed achieving 10 million direct taxpayers by 2026 [56268383]. The NBR's medium-term reform strategy is expected to be finalized by June of this year [56268383].
The outstanding balance of the private sector's short-term external debt in Bangladesh dropped to $11.97 billion in November, signaling an economic slowdown [d3689400]. Factors contributing to the decline include the ongoing energy crisis, depreciation of the local currency, and repayment risks amid forex dearth [d3689400]. The decline in overseas borrowing is seen as a positive sign for the country's depleting foreign-exchange reserves by central bankers, but businesspeople and market analysts have expressed concerns about the impact on industrial production and employment generation [d3689400].
Banks in Bangladesh experienced a sharp decline in deposits in rural areas in the last quarter of 2023, the first fall in five years. Deposits in the countryside slumped 21 percent year-on-year to Tk 266,415 crore in October-December. This decline was driven by an erosion of savings capacity due to sustained higher inflation and a rush for cash withdrawals from scam-hit Islamic banks. Consumer prices in Bangladesh have persisted by over 9 percent since March 2023. Rural inflation had been slightly higher than urban inflation between October and December, which undermined the savings capacity of rural households. Deposits in Islamic banks slipped 11 percent to Tk 56,447 crore in the three months to December. The share of rural savings to the total national deposits dropped to 15 percent at the end of 2023. Urban deposits, on the other hand, recorded a 19 percent year-on-year rise in fund inflows to Tk 14,82,717 crore, the highest pace of expansion in five years. The overall deposit growth in the banking sector stood at 10 percent to Tk 17,49,132 crore. Banks' loans and advances to businesses in rural areas declined 24 percent year-on-year in the final quarter of last year, while advances to enterprises grew 15 percent in cities. Loans grew 11 percent to Tk 15,38,343 crore at the end of December. [3968e77b]
Listed multinational companies in Bangladesh struggled to repatriate funds to foreign owners due to the US dollar crunch, resulting in a drop in dividend payouts. Of the twelve MNCs listed with the Dhaka Stock Exchange, nine announced dividends for the financial year ending December 31, with seven announcing lower rewards for shareholders compared to the previous year. The combined profits of the multinationals rose 10% YoY to Tk 7,029 crore in 2023, and they paid Tk 5,060 crore as dividends, representing 72% of the total earnings. The decline in dividend payout is attributed to the US dollar crisis in Bangladesh, which has led to a fast depletion of foreign currency reserves. The reserves stood at $19.45 billion on Wednesday, down from $40.7 billion in August 2021. The lower dividend awards by the multinational companies have prompted investors to sell off their stocks, driving down prices and causing a bear run in the entire market. Executives working for MNCs blame the lower reserves for the disappointing dividend payout. The board of MNCs may compensate shareholders by announcing higher dividends when the dollar availability returns to normalcy. [9885bbcd]
Bangladesh's trade deficit has worsened as imports continue to outstrip exports, leading to an alarming trade imbalance. In April, the monthly trade deficit was $3.6 billion, a 140% increase compared to the previous month. Export receipts dropped by nearly 22% to $4.0 billion, while import costs increased by nearly 15% to $7.6 billion [4e4dc9ec]. Dr. Ahsan H. Mansur, executive director at the Policy Research Institute of Bangladesh, sees the trade situation as concerning and urges the government to refresh its export strategy. The widening gap was caused by higher imports during Eid-ul Fitr and weak export receipts. External demand from key trading partners remains subdued. The trade deficit may continue to grow in the coming months. The central bank eased import restrictions in April, contributing to the widening gap. Bangladesh is seeking support from the IMF to stabilize its forex market and address macroeconomic challenges. The IMF has noted that Bangladesh's economy faces multiple challenges, including high international commodity prices and global financial tightening. The IMF has approved disbursements of SDR704.70 million under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF), and SDR166.68 million under the Resilience and Sustainability Facility (RSF) for Bangladesh [4e4dc9ec].
Bangladesh's graduation from the group of least-developed countries (LDCs) to a developing nation in 2026 signifies economic progress and improved social conditions. However, the exit will bring challenges for exports due to the erosion of trade benefits. Bangladesh has enjoyed zero-duty benefits on exports to different countries as an LDC, including preferential treatment in 38 countries and trade preference on shipments to the European Union. After LDC graduation, Bangladesh may lose preferential market access, resulting in a potential loss of $7.77 billion annually in merchandise exports. The country may face duties in major export destinations, impacting the industrial sector and potentially leading to job losses. While the graduation will enhance the country's image and may attract foreign direct investments, Bangladesh will need to negotiate trade agreements to retain trade benefits beyond 2026. The EU and some countries have agreed to continue LDC-linked benefits for Bangladesh for three more years after 2026. The government is taking measures to tackle challenges and ensure competitiveness, including signing agreements with major trading partners and providing subsidies to export-oriented industries. Import and supplementary duties on certain products will be reduced to prepare for graduation, but experts consider the measures inadequate. [dee7b69f]
The National Board of Revenue (NBR) in Bangladesh has corrected its estimates of exports, revealing a $10 billion error in the export data [88ffeb9c]. The correction shows that exports are $10 billion less than previously reported, leading to a negative growth in reality instead of the perceived positive growth [88ffeb9c]. The correction has major consequences on the export-to-GDP ratio and debt servicing payment calculations [88ffeb9c]. The decline in export calculations will reduce the export-to-GDP ratio and increase the burden of debt servicing [88ffeb9c]. The correction was made following criticism of the substantial gap between the shipment and the realized value of exports [88ffeb9c]. The International Monetary Fund (IMF) raised concerns about the negative trade credit and its impact on the financial account deficit [88ffeb9c]. The correction was made by adjusting the mismatch in export values within trade credit [88ffeb9c]. The double counting of exports by different agencies has inflated the country's export figures, making it difficult to assess the true performance of the export sector [88ffeb9c]. The correction in export data may affect reserves, GDP, and economic recovery [88ffeb9c].