Total foreign loan of bangladesh, reserves and the overall economy of Bangladesh have faced several challenges in recent years. External debt and reserve positions are reflecting these challenges. Although Bangladesh’s economy has maintained a strong growth trend for more than a decade, external factors such as the global pandemic, Ukraine war, and inflation have currently undermined economic stability.
Foreign Debt Status
Bangladesh’s foreign debt is on the rise, and as of June 2024, the foreign debt exceeded $96.5 billion. While this debt is being used by the government mainly for infrastructure development, the rising debt interest burden is putting pressure on the economy. The bulk of the loans come from the International Monetary Fund (IMF), the World Bank, and the Asian Development Bank (ADB), which are being spent on long-term projects.
However, the amount of external debt is said to be relatively manageable, as the amount of debt compared to the country’s GDP is still at a bearable level. In 2024, Bangladesh’s debt-to-GDP ratio was about 35%, lower than many developing countries. However, if the growth rate of the economy slows down, this debt burden may become more complicated.
Current status of reserves
- Bangladesh’s reserves have declined significantly in recent times. At the end of 2023, reserves were around $32 billion, much lower than in the past.
- It was around $48 billion in FY 2019-20.
- The reason for this reduction in reserves is the increase in import costs and decrease in export earnings.
- This impact on the reserves is due to the increase in oil prices in the world market, increase in the cost of importing food grains and fertilizers, and a slight decrease in remittances.
- Bangladesh Bank spent some of its foreign exchange reserves to control the dollar price, which helped reduce reserves.
- This increases the inflation pressure in the country
Challenges of the overall economy
The economy of Bangladesh is currently facing several challenges. For example:
- Inflation: The prices of food and daily necessities are increasing, which adversely affects the life of the common people.
- Rising oil prices in the global market and supply chain disruptions have accelerated inflation.
- Export Sector Stress: Bangladesh is an export dependent economy, where the garment industry plays the largest role.
- But the decrease in demand in the world market is affecting the export earnings. Orders fell in Bangladesh’s apparel sector as buyers in Europe and the United States cut spending.
- Pressure on Foreign Exchange Earnings: As remittance income declines slightly and increases the pressure on import expenditure, there is a shortage of foreign exchange.
- In this, the country’s foreign exchange balance has become negative.
Future prospects and solutions
Some short-term and long-term steps should be taken to overcome the crisis of foreign debt, reserves and the overall economy of Bangladesh.
- Investment attraction: Investment friendly policies are required to attract local and foreign investment.
- Technology and infrastructure development: Technological development and infrastructure development in industries should be prioritized to increase productivity.
- Export Diversification: Development and diversification of the garment industry as well as other export oriented sectors is needed.
- Although Bangladesh’s economy is strong, concerted efforts are needed to restabilize the economy by addressing the current global and domestic challenges.
