Foreign loan repayment up 52%, disbursement down 17.47% in Jul-Oct

The country's foreign loan disbursement declined from $1.97 billion to $1.6 billion during the July-October period of the current fiscal year. 

The 17.47% dip is attributed to the government agencies' limited spending capacity and disruptions caused by election-centric violence and blockades, impeding smooth execution of development projects.

In contrast, the country faces a 52% increase in foreign debt repayment during the same period, according to the latest report of the Economic Relations Division.

Officials at the Economic Relations Division said that one of the reasons for the decline in disbursement, besides the inability to implement projects, is the lack of budgetary support.

In the previous fiscal year, the government received about $2 billion in budget support from various development partners to deal with the economic situation, some of which was disbursed at the beginning of the fiscal year. However, no budget support has come yet in the current fiscal year, although the government has already started the process of obtaining budget support from the Asian Development Bank (ADB), World Bank, and Asian Infrastructure Investment Bank (AIIB).

The Economic Relations Division officials also highlighted the fact that the initiation of principal repayment for substantial loans, such as the Bangabandhu Sheikh Mujibur Rahman Tunnel, after the expiration of their grace periods, contributes significantly to this surge.

Adding to the economic complexity, the government's market-based loans have risen, accompanied by a spike in floating interest rates. Two years ago, the Secured Overnight Financing Rate (SOFR) interest rate on market-based loans was below 1%, but it has now surged by 5%.

This surge has escalated pressure on foreign debt repayment, leading to a 176% increase in interest payments during the first quarter of the current fiscal year compared to the same period in the previous year.

Dr Mustafa K Mujeri, former director general of the Bangladesh Institute of Development Studies (BIDS), said, "The disbursement is usually low at the beginning of the fiscal year due to preparatory work. In addition, many procedural works are not moving forward due to our economic crisis, high inflation, reserve crisis, and political situation. In this situation, disbursement has decreased and may decrease further in the future."

"Even if there is an economic crisis, we have to repay our loans. Because we took the loans in the past for mega projects, it is time to repay them. In this context, the impact of rising global interest rates has increased the pressure on our debt repayment. However, no matter what the situation is, we must be careful not to fail to repay our loans. If we fail to repay, our credit rating will decrease," he added.

According to Economic Relations Division data, Japan has disbursed the highest amount of $512.36 million during the July-October period. In addition, $332.46 million and $294.24 million have been received from the World Bank and ADB respectively. In addition, Russia has disbursed $260 million.

The government expects $11.24 billion in debt relief from development partners in the current fiscal year. Notably, the highest debt relief of $10 billion was given in the 2021-22 fiscal year.

The data from the Economic Relations Division further reveal a remarkable 776.85% increase in foreign loan commitments during the July-October period, soaring to $3.6 billion from $413.81 million in the corresponding period of the previous fiscal year.

The highest commitment has been received from Japan in the first four months of the fiscal year. During this time, a loan agreement of $1.5 billion has been signed with Japan. In addition, $1.03 billion has been committed from the ADB. The World Bank has also committed $300 million.