Bangladesh’s central bank asks firms to seek foreign loans

DHAKA (Reuters): Bangladesh’s central bank chief urged private sector entrepreneurs on Thursday to seek loans from foreign sources, saying such credit would be cheaper and more readily available.

“We have allowed the local corporates to borrow about $600 million (this financial year) from foreign sources,” Governor Atiur Rahman said.

“I would really suggest you to look for foreign loans as they are cheaper and easier to get now,” he urged local entrepreneurs attending a meeting of the Foreign Investors’ Chamber of Commerce and Industry (FICCI).

So far, firms in the private sector have borrowed money from foreign sources to fund investment in shipping, power, footwear, IT, telecom, agriculture, steel and ready-made garments, the governor said.

“If you seek permission for such foreign loans, we (the central bank) will complete the process within a maximum of 48 hours,” he pledged, adding, “Borrowing from foreign sources would help maintain a steady exchange rate and ease pressures on the foreign exchange reserves.”

The central bank is seeking to curb the money supply and cut excess demand, aiming to bring down the inflation rate to a single digit by the financial year-end, 30 June 2012. Inflation averaged close to 11 per cent in February.

The taka currency lost more than 15 per cent of its value against the U.S dollar in 2011, although volatility in exchange rates have since eased, as has a bank liquidity crunch.

While the rapid growth in government borrowing from the banking sector has been crowding out credit to the private sector, Rahman said, the target of 16 percent credit growth to the private sector could still be maintained.

Syed Ershad Ahmed, President of FICCI, said that the volume of foreign direct investment (FDI) in the country was still very low, but the central bank’s move might attract more investment.

“The level of FDI in Bangladesh is short of what it should be,” Ahmed said.

He said some impediments to investment had been removed by stroke-of-the-pen decisions, but more time was needed to resolve problems like power and gas constraints to enable Bangladesh to raise growth to an average of eight per cent a year during this decade and make further decisive inroads in reducing poverty.