External debts up by 141pc in two years

Higher rate of short-term foreign borrowings blamed

Munima Sultana

The volume of Bangladesh's external debts surged by 141 per cent to US$ 54.73 billion in two years to June last, says the central bank.

The volume of external debts at the end of March 2016 stood at US$ 38.88 billion, the Bangladesh Bank (BB) said in its quarterly financial stability assessment report.

The report attributed the rapid rise in such debts in the last couple of years mainly to the higher rate of short-term foreign borrowings.

It said the short-term foreign borrowings accounted for 22 per cent of the total external debts in June 2018.

The cumulative growth of the same hit 205 per cent during the period of March 2016 to June 2018.

"Generally, rapid growth of short-term foreign debt is considered as an early indicator of potential vulnerability. However, current share of short-term debt to total debt portfolio seems to be considerably low," the report stated.

The central bank's study analysed the current external debt situation of the country from the financial stability standpoint.

It said the prospective inflow of external debts to Bangladesh might decline while the existing debts might also be affected.

However, the report stated that the current external debt-GDP ratio seemed to be low. In the fiscal year 2017-18, the external debt-GDP ratio stood at 20 per cent and the short-term external debt-GDP ratio 4.44 per cent.

Until June 2018, the ratio of short-term external debt to foreign exchange reserve in the country was 37 per cent against 99.69 per cent, 176.59 per cent, 203.23 per cent, and 40.98 per cent in Thailand, Indonesia, Korea and Malaysia respectively prior to the Asian financial crises.

The short-term external debt to remittance ratio stood at 81.63 per cent at the end of June 2018, implying that such debts could be fully off-set by yearly remittance inflow, the central bank said.

"Though it is still far from the point where sentiment of foreign lenders can precipitate a financial stress by sudden call back of their debt, resilience of Bangladesh financial system to withstand external shock needs to be enhanced," the report said.

The current external debt-GDP ratio of Bangladesh is still low. The current level of international reserve is adequate to redeem the short-term external debt obligation, the BB said.

Nevertheless, since short-term external debt is growing rapidly, utilisation of the same needs to be monitored prudently so that it cannot turn out to be a source of distress, the quarterly assessment report says.

• Courtesy: The Financial Express /Oct 31, 2018