Jul-Aug foreign loan repayment rises 38.2% amid disbursement slump

Bangladesh's foreign loan disbursement has decreased while debt repayment has increased 38.2% year-on-year in the first two months of the current fiscal year. 

Foreign aid disbursement has dropped 14.48% to $739.07 million from $864.29 million a year ago, according to data published by the Economic Relations Division (ERD) on Monday.

Meanwhile, Bangladesh paid back $400.5 million to its development partners in July and August, compared to $289.78 million in the same period of FY23.

However, foreign loan commitments increased by a whopping 275% to $1.14 billion in July and August compared to $304.92 million in the same period of the previous fiscal year, according to the ERD data.

ERD officials say project approval and loan processes are typically slow at the beginning of new fiscal years. However, the government has taken a strategic approach to securing foreign loan commitments at the beginning of the current fiscal year, which has led to an increase in commitments.

Commitments of $790 million and $300 million were received during this period from the Asian Development Bank (ADB) and the World Bank, respectively.

On the other hand, principal repayments on loans taken for several ongoing megaprojects have begun. Additionally, the high interest rate on market-based loans has led to an increase in interest payments. Interest payments on foreign loans increased by around 58% in the first two months of the current financial year, compared to the same period a year ago. ERD officials expect that interest payments on other principal amounts will also increase in the future.

According to ERD's projection, debt repayments in the current fiscal year will increase to $3.56 billion from $2.67 billion in the last fiscal year. And it will increase to $4.21 billion and $4.72 billion in the next two years, respectively.

Officials said project implementation remains slow at the beginning of the financial year. At this time, mainly preparatory work is done. As a result, there is no speed in the release of the funds.

During July–August, Japan released the highest amount of $308.87 million. Besides, $157.47 million and $132 million were received from the ADB and the World Bank, respectively. In addition, Russia has released $42.53 million.

In the current fiscal year, the government is now expecting $11.24 billion in disbursements from development partners. The previous maximum disbursement of $10 billion was in fiscal 2021-22.

Officials say the budget support is likely to contribute a lot to the fund release in the current financial year. Meanwhile, budget support of $1.05 billion has received initial assurances from various development agencies. Of this, $800 million each from ADB and AIIB and $250 million from the World Bank are expected to be supported.

To reduce the burden of foreign debt repayment, emphasis should be placed on the release of project loans. Moreover, in order to achieve the goal of fund release, emphasis should be placed on the implementation of the projects from the beginning of the financial year. Otherwise, it will be difficult to achieve this goal, said stakeholders.