Foreign loan commitments fall 98% to $20m in Jul-Aug

Infographics: TBS

Bangladesh's foreign loan commitments from development partners plummeted by a staggering 98% year-on-year in the first two months of the current fiscal year. 

The sharp decline coincided with the July mass uprising, which ended the prolonged autocratic rule of former prime minister Sheikh Hasina on 5 August. 

Additionally, a fresh review of foreign-funded projects in the pipeline or at the negotiation stage by the interim government, which took office on 8 August, also contributed to the decline in loan commitments.

According to data from the Economic Relations Division (ERD), development partners pledged only $20.16 million in grants through August of FY25, a significant decrease compared to $1.144 billion during the same period last year.

ERD officials stated that the government has re-evaluated loan proposals, resulting in no current loan agreements with development partners.

However, once the review is completed, the loan application process will begin, and the government is optimistic that commitments will be fulfilled according to the targets.

Officials also noted that since the interim government took office, multilateral and various bilateral development partners, including the World Bank and the Asian Development Bank (ADB), have provided preliminary assurances of loan support and budget assistance for various projects. Compared to previous fiscal years, there is now a possibility of Bangladesh securing foreign loans.

The interim government has embarked on a review of all foreign-funded projects – whether ongoing, proposed, or under negotiation – to identify priority projects, initiate their implementation, and discontinue those deemed unnecessary.

As part of this effort, the ERD has already issued letters to government agencies that are implementing foreign-funded projects.

The letter asks agencies to submit a priority list, along with information on project rationale, feasibility, and progress, by the end of this month.

According to ERD officials, the priority list is being sought to assess the significance of foreign-funded projects, cancel those deemed non-essential, and prioritise the allocation of foreign loans.

ERD officials say the list of foreign loan requests has begun to come in from various ministries and divisions. The ERD will review these lists and forward them to the Planning Commission after receiving submissions from all relevant ministries and departments.

The Planning Commission will prioritise the project approval process, and the ERD will initiate the loan application process, they added.

After the Executive Committee of the National Economic Council meeting on 18 September, Planning Adviser Professor Wahiduddin Mahmud told reporters that all projects in the pipeline will be evaluated.

"We will expedite the selection of foreign financing projects because we urgently need foreign funding. There are billions of dollars-worth of projects in the pipeline awaiting approval. However, it cannot be claimed that all foreign economic projects are viable," he added.

ERD officials indicated that, given the current economic situation, the government has requested budget support from various development partners. Of this, $1 billion is expected from the World Bank and ADB to cover oil and gas arrears. Additionally, $1 billion has been sought from Japan.

The ERD expects to receive $900 million from ADB in the current fiscal year to support the budget for oil and gas arrears, banking sector reforms, and the transition to a developing country.

ERD officials said under the second "Bangladesh Green and Climate Resilient Development Credit" programme, $500 million in budget support will be received from the World Bank for the current fiscal year.

Additionally, the Asian Infrastructure Investment Bank and other development partners have provided assurances of budgetary support for the current fiscal year. ERD officials noted that these budgetary supports will help boost foreign loan commitments.

Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development, told The Business Standard, "The current situation is far from normal, which is why the necessary preparatory work for securing foreign loans is not progressing as expected."

He explained, "The government is also reviewing project proposals for foreign loans, leading to a decline in foreign debt commitments. However, several development agencies have announced their willingness to provide project loans and budget support. Given this, the preparatory work for foreign loans needs to be expedited."

Repayments exceed loan disbursements

According to ERD data, in the first two months of the current fiscal year, Bangladesh's repayment of foreign loans surpassed the amount disbursed by development partners.

Bangladesh received $458.24 million in foreign aid in the July-August period, while it repaid $589.22 million in principal and interest during the same period.

ERD officials said the political unrest stemming from student protests against discrimination throughout July-August impacted the execution of some projects, which contributed to the decrease in disbursements compared to the same period last year.

ERD officials have indicated that following the change in government, administrative and development activities are experiencing instability. Additionally, many foreign loan projects are facing delays due to the absence of foreign consultants, contractors, and staff.

This has contributed to a slowdown in the implementation of development projects, which is a growing concern, as it has also led to a reduction in disbursements, they added.

According to ERD data, foreign aid disbursements in the first two months of the current fiscal year have decreased by 38% compared to the same period last year.

Development aid agencies disbursed $458.24 million during July-August, down from $739.07 million in the corresponding period of the previous fiscal year.

ERD officials also said a significant surge in foreign loan repayments, primarily due to increased principal repayments on China's loans for the Padma Rail Link project.

According to ERD data, foreign loan repayments rose by 47.1% in July-August compared to the same period last year. In the first two months of the previous fiscal year, Bangladesh repaid $400.50 million, whereas this year, the amount has climbed to $589.22 million.

Principal repayments saw a sharp increase of 63.6%, with $415.6 million repaid in July-August of the current fiscal year, compared to $254.11 million during the same period last year.

Interest repayments also increased, amounting to $173.6 million in July-August this year, up from $146.4 million in the corresponding period last year, the data shows.

Disbursements by development partners in July

According to ERD data, Japan disbursed the highest amount of foreign aid in the July-August period, releasing $130.35 million. This was followed by the ADB, which provided $117.34 million, the World Bank with $46.14 million, India with $37.81 million, and Russia with $31.38 million.