$31b foreign loans in pipeline, transportation gets lion’s share

Transportation continues to remain the government's top priority, accounting for one-third of the $30.89 billion in external loans expected in the current and next two fiscal years for projects that have been greenlighted by development partners.

Among the 115 projects listed by the Economic Relations Division (ERD), 30 are for road and railway networks with loan proposals totalling $10.7 billion. The energy sector follows the transportation sector with 17 projects expecting $4.77 billion in external funding.

The major projects include Metro-5 in Dhaka, Kalurghat rail-road bridge in Chattogram, Dhaka-Cumilla chord line, railway container depot in Gazipur's Dhirasram and container terminals at the Chattogram Port.

Loan deals are expected in three fiscal years till FY26 for projects to be implemented within five years of signing.

While resource mobilisation prioritises infrastructures for trade and investment, with $10.7 billion planned road and railway networks, education and healthcare will receive comparatively less funding at $1.64 billion and $1.19 billion, respectively.

This continues the trend of lower allocations for education and healthcare in annual development budgets. These sectors, crucial for human capital development, receive significantly less funding compared to transportation, which accounts for 26% of the current year's development budget. In contrast, education and health are allocated only 7% and 5%, respectively.

However, proposed education projects are mostly focussed on skills training while health projects include an extension of a multi-lender funded nutrition scheme.           

Prudence urged in project selection

Selim Raihan, a professor of economics at Dhaka University, feels Bangladesh continues to prioritise physical infrastructures, but lags behind competitors in social infrastructures such as education and health. "Health and education also need mega projects, otherwise we will miss out on broader development as envisaged in SDG, five-year plan and so on," he told TBS.

These two social sectors are not even capable of utilising whatever mere allocations they get, he points out, stressing major reforms to enhance efficiency of these sectors.

"We talk about development, productivity and demographic dividend, but we do not invest much in health and education," said Prof Raihan, who is also the executive director of local think-tank South Asian Network on Economic Modeling (Sanem).

The ERD maintains a monthly updated list of promising loan agreements for upcoming projects. The Asian Development Bank is expected to contribute half of the total, $14.95 billion with the World Bank already approving $3.73 billion. Loan agreements for an additional $11.12 billion are in preparation for signing with other development partners including the Asian Infrastructure Investment Bank, China, South Korea, and the New Development Bank.

Its latest report also mentions a proposed $3.61 billion budget to address the country's upcoming budget challenges and economic situation.

Zahid Hussain, a former lead economist of the World Bank's Dhaka office, urges caution in project selection to maximise economic benefit and keep repayment pressure in check.

He noted the importance of selecting projects with a clear economic benefit.

"Investing in vanity projects using foreign loans is not justified. The Hambantota International Port project in Sri Lanka was also a vanity project. Our Karnaphuli Tunnel is a similar case," the economist told TBS. 

The former World Bank economist said that priority should be given to projects that attract foreign investment and generate foreign currency.

"Projects that will increase export productivity should be selected. Priority should also be given to projects that will improve the logistics system and projects related to fuel supply which will directly contribute to increasing foreign exchange," he added.

Share of bilateral loans growing

The share of bilateral loans, some high-interest bearing, is growing in Bangladesh's external debt portfolio.

Bilateral debts accounted for 40% of Bangladesh's external debt stock in FY23, up from 31% in FY20. ERD data shows as of 30 June 2023, borrowing from multilateral sources totalled $37.25 billion, while loans from bilateral sources were $25.15 billion.

The additional loan from external sources would add to the amount when Bangladesh's annual repayment crossed $2 billion in eight months of the ongoing fiscal year to February, 43% up from the same period last year.

Economist Zahid Hussain expressed concerns about Bangladesh's growing reliance on market-based external loans for infrastructure development.

"The government's operating expenses are increasing, debt repayment is also going up. Global interest rates are also high. Market-based loans with tough terms should now be used less," he said.

However, IMF-WB's Debt Sustainability Analysis assessed Bangladesh is at low risk of external and overall debt distress.

Economist Professor Mustafizur Rahman of Centre for Policy Dialogue says Bangladesh's public sector external debt to GDP ratio is "quite comfortable," but increase in external borrowing and debt servicing liability in recent years is a cause of concern.

ADB focuses transport, WB local govt 

The Asian Development Bank (ADB)'s pipeline loan projects include major road, railway, inland depot and container terminal works involving $4.93 billion –  higher than any other sector. The government has secured $2.6 billion from the ADB for 12 projects.

A key project is the $5.47-billion Dhaka metro  (Line-5) Southern Route, expected to start next year. It is in the final stage of the approval process, according to the Planning Commission. After a committee meeting this month, it will be presented to the Executive Committee of the National Economic Council for final approval. 

The 17km mostly underground metro rail line connecting Gabtali and Dasherkandi will be co-funded by ADB and South Korea. The first $300 million tranche from the ADB is expected this October.

The Manila-based agency has committed $600 million for the first phase of the Dhaka-Chattogram broad gauge rail track project aimed at faster connectivity between the two cities. 

Railway officials said they aim to sign two loan agreements with ADB by next year.

The loan agreement with ADB for the $250-million inland container depot project at Gazipur's Dhirasram  is nearing finalisation. The railway ICD will connect Chattogram and Matarbari ports to capital Dhaka by rail. 

Approval has been received from the World Bank for 11 projects, with a larger share ($1.76 billion) going to local government and rural development.

A $350-million loan agreement for a component of the Chattogram Bay Terminal, a crucial project for port expansion, is expected this year.

Asian partners teaming up

The government is preparing to sign loan agreements for 29 infrastructure development projects with Asian development partners including the Asian Infrastructure Investment Bank, the New Development Bank, Japan, China and  South  Korea. 

The transport sector will receive over $5 billion, nearly a half of the amount agreed on or being negotiated.  

A loan deal with China is expected this fiscal for digital connectivity at Bangabandhu Hi-Tech City in Gazipur's Kaliakoir, while preparations are at final stage for South Korean loan for a rail-road bridge across the Karnaphuli River at Chattogram's Kalurghat.  

Furthermore, Japan has already signed loan agreements for three projects this year, worth over $2 billion. 

Health, education getting some boost too

ERD officials are expecting loan deals till June next year with World Bank, ADB, Asian Infrastructure Investment Bank and South Korea for a number of national and urban health and nutrition projects including the 5th Health, Population and Nutrition Sector Programme, Healthcare Improvement Project and BSMMU Super Specialised Hospital. 

The education sector is also set to receive major funding with loan agreements for multiple projects pending according to ERD's list.

Of them, ADB will support programmes such as NextGen Secondary Education Programme, Technical Education Modernisation and Fifth Primary Education Development Programme, the latter may be signed in March 2026.

The Saudi Fund for Development will support construction of 10 secondary schools in Haor areas, with a loan agreement expected this year.