Buyer's credit contracts, cuts industrial output

Buyer's credit taken by private sector slides largely for gradual but significant fall in import of capital machinery amid forex dearth, sources said.

The decline, it is feared, might lead to contraction of industrial production.

Economists and analysts see this downward cycle as one reason for an inexorable volatility on the domestic market apart from alleged manipulation of the supply chain.

Also, they said, the availability of the foreign currencies, which become costlier because of depreciation of the local currency against the greenback and repayment risks amid forex shortfall, squeezed amid such uncertainties.

Buyer's credit is a short-term loan to an importer by an overseas lender for the purchase of goods or services.

According to the statistics of Bangladesh Bank (BB), the volume of buyer's credit was US$ 8.91 billion in January 2023. The monthly figure of the short-term foreign debt dropped to $8.51 billion, $8.13 billion, $ 8.0 billion, $7.99 billion, $7.70 billion and $7.66 billion in February, March, April, May, June and July respectively.

Seeking anonymity, a BB official said the falling trend in buyer's credit is a reflection of the overall drop in the volume of short-term external credits taken by the private players.

The official said the total size of the short-term private-sector external debt was $15.58 billion in January 2023. Thereafter, it went on a slope, falling to $14.77 billion in February, $14.08 billion in March, and $13.87 billion in April. But it showed a little upturn in May when the amount was $14.08 billion. After that, it dropped again to $13.65 billion and $ 13.38 billion in June and July respectively.

Although the central bank's officials are taking the downturn in private sector's one-year-long overseas borrowing as a blessing in disguise as it would lessen pressure on the country's foreign-exchange reserves, businesspeople and market analysts think it would not be a good sign for normal economic activity.

Managing Director and CEO of Mutual Trust Bank Limited (MTB) Syed Mahbubur Rahman says getting funds from outside is becoming difficult nowadays.

On the other hand, the exchange rate continues increasing that makes the US dollar costlier, which the private sector might think not viable for their businesses. "And it is reflected in the buyer's-credit data," he adds.

Seeking anonymity, the chief financial officer (CFO) of a private commercial bank said global lenders might consider the risk of repayment before lending to private-sector players in the country where availability of the foreign currencies remains a concern.

"This could be a reason behind the falling trend in buyer's credit to the private sector from outside sources," the banker added.

Talking to the FE, Executive President of Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) Mohammad Hatem said they were planning to put more money into business in early 2022 when the export growth of clothing industry was surging. Within a couple of months, the Russia-Ukraine war broke out, upending the global macroeconomic orders.

"As a spillover impact, it is affecting the macroeconomic situation of Bangladesh as well and it makes the overall situation not conducive to investment," he said.

Contacted for his view of the situation, former lead economist in World Bank's Dhaka office Dr Zahid Hussain said the fall in buyer's funds is mainly because of significant decline in import orders over the months.

"Buyer's credit is a very short-term credit but the ongoing crisis in the supply of forex makes it difficult for the private sector to repay the loan in time, which is a matter of concern for the country's overall industrial outputs," says the economist about the chain effect of the financial parameter.

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