Short-term foreign loans to private sector hit 8-month low at $9.55b

The stock of short-term foreign loans to the private sector fell below $10 billion again in August this year — the lowest in the past eight months.

At the end of August, the outstanding short-term foreign debt stood at $9.55 billion, down from $9.80 billion in January this year. Compared to August 2024, when the figure was $11.18 billion, the debt dropped by 14.58% year-on-year.

Economists and bankers say the decline reflects lower demand for import letters of credit (LCs), particularly those opened under buyer's credit arrangements. With reduced investment, imports of capital machinery and raw materials have slowed, leading to a fall in short-term borrowing despite a relatively stable supply of dollars and a comfortable reserve position.

In a buyer's credit, an importer takes a loan from a bank to finance the purchase of goods and repays the bank later.

Zahid Hussain, former lead economist at the World Bank's Dhaka office, said,
"Short-term foreign loans are trade-related financing, which has declined due to lower demand. Reduced investment also means less borrowing. Besides, the drop in buyer's credit has contributed to the overall decline."

He added, "Earlier, there was a dollar and reserve crisis, so even when there was demand, foreign loans were limited. Now the dollar situation and reserves have improved, so if demand rises again, access to loans should also increase."

Syed Mahbubur Rahman, managing director and CEO of Mutual Trust Bank, said, "When LC openings decline, buyer's credit naturally falls. LC openings have dropped compared to before, hence the decline. Moreover, SOFR rates were previously high. With rates now easing, we may see an upward trend soon."

According to Bangladesh Bank data, despite adequate dollar supply, import settlements declined in August 2025. Import payments fell to $4.88 billion, down 10.94% from $5.48 billion a year earlier.

Buyer's credit was also at its lowest in August this year — $4.54 billion.

Central bank figures show that short-term foreign debt stood at $16.42 billion at the end of 2022, dropping to $11.80 billion in 2023, and further to $10.13 billion by the end of 2024.

In August 2025 alone, new short-term foreign borrowing amounted to $1.42 billion, while repayments reached $1.89 billion, marking the lowest inflow in eight months.

Bangladesh Bank also reported that imports of capital machinery fell by about 12% in the first two months of the current fiscal year.