Between February and April 2025, Bangladesh’s private sector saw a notable rise in foreign borrowing, with loans increasing by $454 million, a move attributed to a stable exchange rate environment that made dollar-denominated debt more appealing. Economists highlight that Bangladesh Bank’s current managed float exchange rate kept steady within a narrow band has reduced the risk of depreciation. This predictability allows businesses to tap into foreign financing with lower currency risk, helping stabilize costs and support investment plans. A key factor driving this trend is the interest rate differential: borrowing in dollars remains cheaper than in taka. Even slightly lower monetary rates abroad can translate into significant savings for large-scale businesses, specially manufacturing and infrastructure firms. The rise in external debt comes at a time when foreign exchange reserves have also strengthened, hovering around $22 billion, a buffer that supports reserve stability and helps the central bank maintain its exchange rate framework. This borrowing raises two notable advantages: Investment boost: With access to cheaper credit, businesses can scale up operations, upgrade equipment, and potentially expand exports supporting the nation’s growth ambitions. Enhanced reserves: Foreign loans bring in new currency, replenishing reserves and helping guard against external shocks. However, the trend also raises caution flags. Borrowing in foreign currency exposes firms to debt-service risk if the taka depreciates, repayment costs may surge. While the current stability reduces immediate concerns, prolonged volatility could pose challenges. Experts suggest that companies should implement risk management techniques such as hedging and currency options to protect themselves from unexpected changes in currency value. Simultaneously, it is advised that central banks and regulatory bodies closely monitor debt inflows and ensure that businesses uphold a solid level of leverage. Despite potential risks, economists have largely welcomed the move. They note that the demand for foreign loans reflects confidence in Bangladesh’s economic trajectory, as well as improved access to global financial markets. Another positive takeaway: the increase in foreign borrowing suggests that banks and regulators are enabling private-sector investment, even without resorting to commercial bank loans. This diversification in funding options aligns with long-term economic planning. Looking ahead, the focus will be on how firms use these funds. Investments channeled into export-oriented industries, infrastructure, and technology could deliver real value and help Bangladesh move toward its development goals.
