WHILE the country’s foreign exchange reserve is now enjoying a robust figure, a large amount of buyers’ credit; which is steadily spilling over is creating a critical situation, bringing pressure on the reserve to repay the overdue. And it is happening because the business houses using buyers’ credit are not regularly making repayment causing the spill over. It may ultimately create a greater mismatch drawing heavily on our reserves. Media report on Thursday said from June 2015 to June 2016, buyers’ credit increased by 17.84 per cent from $3.78 billion to $4.45 billion and it is poising growing risk for the financial sector when importers will have to repay it in foreign currency with interest to foreign banks.
The fact is that Bangladesh Bank (BB) now allows buyers’ credit in foreign exchange from foreign banks for import financing in the industrial sector. As per rules, they import capital machinery and industrial raw materials with the fund at around five per cent interest. Use of short-term (up to one year) external financing is eligible under deferred payment and it appears that the amount is increasing in recent years; because in most cases importers have not repaid loans allowing the overdue to spill over. In other words repayment outflows are not growing in proportion to accumulating loan liabilities and as per experts’ view it will take a larger toll on reserves later on creating outflow pressure of foreign exchange on local market. BB data show that the overdue position in buyers’ credit in last three months stood at $10.22 million in June, $9.04 million in May and $10.11 million in April.
There is a greater danger as importers make loan in foreign currency but they earn from exports in local currency when Bangladesh Bank takes away the foreign currency. So when they repay, they have to buy foreign currency again and in many cases they have to bear acute loss as the local currency at all times depreciates against US dollar. It appears that Bangladesh Bank imposed a restriction on short-term buyers’ and suppliers’ credits from overseas sources for import in 2014 to minimize repayment risks. Under the restriction, the payment will have to be made on a quarterly basis, if the import value exceeds $0.5 million or the loan tenure is more than six months. But it didn’t bear any fruit as the upward trend of repayment spill over continues and it poises the risk of heavy toll on our reserves.
In our view BB should impose stringent rules to restore discipline and force borrowers of buyers’ credit to regularly repay their debts. It may also help avoid excessive liquidity crisis on banks. Only BB’s active role may ease the burden of buyers’ credit and protect reserves from coming under undue risks.
