Private Sector Credit Growth Slows to 9.8% in June 2024

The government of Bangladesh has stopped borrowing from the central bank, instead repaying previous loans, resulting in a reduction of Tk 18,250 crore in government debt to Bangladesh Bank during July-August of the current fiscal year. However, the government borrowed Tk 28,952 crore from commercial banks in the same period, bringing the net debt from the banking sector to Tk 10,702 crore. This shift is part of Bangladesh Bank's effort to control inflation by avoiding money printing for government loans.

An IMF delegation is set to visit Bangladesh from September 24 to 30 to assess the country's financial needs as it seeks a new $3 billion loan. The team will evaluate economic developments and potential financing needs, working closely with the interim government to advance reforms. The IMF has an ongoing $4.7 billion loan programme for Bangladesh, approved last year, as the country faces dwindling foreign currency rese

The Government of Bangladesh (GoB) is currently in discussions with Beijing to negotiate more favorable terms for Chinese loans. The aim is to reduce the interest rate to 1% and extend the repayment period to 30 years. 

At present, loans from China are provided at interest rates ranging from 2-3%, with a repayment period of 20 years. The Economic Relations Division (ERD) of the Ministry of Finance sent a formal letter requesting these adjustments, following a recent address by the Chief Adviser. This move is part of broader efforts to alleviate the growing pressure on the country's depleting foreign exchange reserves.

Bangladesh's interim government is seeking additional IMF credits as a fact-finding mission from the IMF prepares to visit the country to reassess the ongoing $4.7 billion lending package. The IMF mission, scheduled to arrive soon, will evaluate Bangladesh's economic progress and future funding needs, particularly in light of recent political upheaval and protests. The IMF team will meet with senior officials from September 24 to 30 to discuss macroeconomic issues including banking reforms, exchange rates, and monetary policy.

In July 2024, private sector credit in Bangladesh unexpectedly surged to 10.13%, surpassing the Bangladesh Bank's (BB) projection of 9.80% growth for the year. This increase, noted amid severe economic disruptions due to a mass uprising and the fall of the government on August 5, 2024, raised concerns about possible irregularities and rising overdue payments on letters of credit (LCs). The total outstanding credit volume reached Tk16.36 trillion, up 10.13% from Tk14.85 trillion in July 2023. Analysts are puzzled by the credit rise, given that economic activities were largely stalled, including a five-day nationwide internet shutdown.

Within just one month of taking office, the new interim government of Bangladesh has requested $1 billion in budget support from the World Bank, primarily for the energy sector. The Economic Relations Division (ERD) has requested this support in two installments of $500 million each. A World Bank team will visit Dhaka next week to discuss budget assistance and reforms with the government.