The foreign exchange 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 reserve to foreign debt plummeted to 21.7 per cent at the end of 2023 from 35 per cent in 2022 and 50.7 per cent 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.

Foreign exchange reserves, according to International Monetary Fund 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 organisations, 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 International Monetary Fund, the Asian Development Bank, the Islamic Development Bank, and major overseas commercial banks.

The increase in external liability has significant implications, as a considerable portion of the country’s income will be allocated for debt repayment, experts said.

They stress the need for careful management and prioritisation of resources to ensure sustainable economic development and avoid excessive dependence on foreign borrowing.

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 Tk 117.5 each after the central bank raised the greenback rate by Tk 7 each on May 9.

The exchange rate per dollar in the country was Tk 84.81 in June 2021, Tk 93.45 on June 2022 and Tk 106 in June 2023.

The sudden and sharp devaluation of the taka by the central bank has caused chaos in the currency market and among businesses, bankers said.

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 the financial year 2023-24, $13.5 billion in FY23 and $7.62 billion in FY22.