Geopolitical influence: GtoG loans from India, China pose risks for Bangladesh’s infrastructure, task force warns

Bangladesh's infrastructure development is becoming increasingly vulnerable to geopolitical influences, particularly in securing Government-to-Government (GtoG) loans from India and China, according to a task force report on economic reforms.

The report warns that this dependency creates uncertainty in funding availability and project execution, complicating long-term planning and sustainable development.

The "Task Force Report on Re-strategising the Economy and Mobilising Resources for Equitable and Sustainable Development," states that GtoG loans, while often offering lower interest rates and extended grace periods, come with strategic conditions that go beyond financial concerns.

The release of funds is increasingly influenced by shifting geopolitical dynamics, making Bangladesh's infrastructure projects susceptible to external political pressures.

The report was handed over by Planning Adviser Wahiduddin Mahmud to Chief Adviser Prof Muhammad Yunus on Thursday (30 January).

Challenges in loan utilisation

India's Lines of Credit (LoCs) have played a key role in Bangladesh's development, but they are tied to strict procurement conditions.

A requirement that 75% of project materials and services must be sourced from India limits Bangladesh's ability to negotiate better prices or choose higher-quality alternatives.  

Additionally, the slow disbursement of funds has hindered project execution.

As of September 2022, only $1.5 billion of India's total LoC commitments had been disbursed, reflecting a utilisation rate of just 19%.

The report warns that delays in fund release—often influenced by broader diplomatic and political considerations—have led to disruptions in critical infrastructure projects. 

China's GtoG funding presents similar challenges.

While offering substantial financial support, Chinese loans have been criticised for lack of transparency and potential debt dependency.

Geopolitical factors often determine loan terms, project approvals, and the prioritisation of disbursements, leaving Bangladesh vulnerable to external influences. 

Conflict of interest in project implementation

The report highlights that projects financed through bilateral agreements frequently suffer from conflicts of interest.

In many cases, the feasibility study, detailed design, construction, and supervision are all handled by entities from the funding country, leading to inflated costs.

This pattern of foreign involvement is illustrated by several key projects. 

The Jamuna Railway Bridge, funded by Japan International Cooperation Agency (Jica), saw all major contracts go to Japanese firms, while the Jica-funded Third Terminal at Hazrat Shahjalal International Airport was designed and built by Japanese contractors.

The Chinese-funded Karnaphuli Tunnel project also exemplifies this, with Chinese firms handling planning, construction, and supervision.

The lack of open competition in these projects has resulted in significantly higher construction expenses compared to similar projects in other countries.

Policy recommendations

The task force urges Bangladesh to reduce its reliance on bilateral funding arrangements, which are susceptible to geopolitical manoeuvering.

To achieve this, the task force recommends strengthening institutional capacity for independent project evaluation.

The task force also recommends diversifying funding sources to minimize political risks.

Furthermore, the task force suggests implementing best practices in procurement and cost management to ensure greater transparency and efficiency.

Without strategic reforms, the report warns, Bangladesh's infrastructure projects will continue to face uncertainty, financial strain, and heightened external influence.