Foreign loan disbursement rises in first quarter

The use of foreign loans has gone up in the first quarter (July-September) of the current fiscal year as implementation of foreign aided mega-projects gain pace. Loan disbursement has increased nearly 40 percent in these three months compared to the same period in the last fiscal year. 

Data from the Economic Relations Division (ERD) shows that development partners have disbursed $940.8 million loans and grants, up from $668.6 million in the first quarter of the last fiscal year.                   

The year-on-year rise in foreign loan disbursement is $277.2 million.    

The government plans to take the disbursement to a new height riding on the momentum of the ongoing mega-projects. The growth in foreign loan disbursement has been projected at 26.74 percent this fiscal year with a target of $8.48 billion.     

The first quarter of this year has achieved 11 percent of the target.

In the meantime, the volume of external loan repayment has also risen. The government has repaid a total of $495.18 million of loans and interest in the first quarter. The year-on-year amount was $443.7 million.             

ERD officials said usually 10 to 15 percent of loans are disbursed in the first year of the loan agreement for a project. The disbursement then slows down slightly in the next two years, and then usually gains pace after three years of project implementation. This is because the project goes in full swing at that time. 

Officials say that several mega-projects including the Rooppur Nuclear Power Plant, the Matarbari Coal Power Plant, the Metrorail and the Padma Bridge Rail Link Project implementation have reached a peak, revving up external loan disbursement.                

On the flip side, the jump in loan disbursement speeds up interest payments. Payment of interest begins soon after the loans are disbursed, which gears up loan payment rate. 

Repayment of the principal amounts of the loans for the ongoing mega projects will begin in the next two or three years. The pressure for payment will intensify at that time. Although the government is now paying the interest on the loans for the megaprojects, the principal payments will commence once the grace periods end. 

The period is 5 years on average for the deals the government makes with its development partners. However, it is 7 years for the Rooppur Nuclear Power Plant.    

When contacted, the executive director of the South Asian Network on Economic Modeling, Dr Selim Raihan, said Bangladesh's external loan volume is low comparing to its gross domestic product. Therefore, there is no pressure for payment now.

Selim Raihan, who is also a Dhaka University teacher, said, "The government plans to complete some megaprojects in upcoming years. We need to be careful about loan management so that the country does not end up like Sri Lank or Pakistan." 
The professor also said, "The loan volume gets bigger if a project is not completed on time. If we can complete the projects on time, loan management hopefully will not face any bumps."     
The Asian Development Bank (ADB) disbursed the highest amount of loan, $197.58 million, in the first quarter. The World Bank disbursed $149.23 million while Russia disbursed $67.57 million during the period.        
Meanwhile, loan and grant agreements with donors have also increased in the first quarter. Bangladesh received a total of $2016 million of loan and grant agreements till last September. This amount consists of $1991.71 million in loan agreements and the remaining $193 million in external grants.          
The year-on-year grant agreement was $1823 million.