Foreign loan commitments drop by 67.11% in first half of FY25
The ERD data shows disbursal of loans also dropped by 13% during the period while repayment of foreign loans has continued to increase gradually
Despite receiving $1.1 billion in budget support in December, Bangladesh's loan commitments from development partners dropped 67.11% in the first half of this fiscal year, due to disruptions stemming from the July uprising, political and economic stalemate, and project re-evaluations.
According to the Economic Relations Division (ERD), Bangladesh secured $2.298 billion in commitments, down from $6.989 billion in the same period the previous year.
ERD officials said since the interim government assumed power in August, it has cautiously moved forward with foreign-financed projects, re-evaluating those in the pipeline. Loan processing is being prioritised based on project importance. As a result, the signing of agreements for new projects has slowed.
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The government is now focusing on budget support due to the economic crisis and reserve needs. Last December, it signed budget support loan agreements of $500 million with the World Bank and $600 million with the Asian Development Bank.
Professor Selim Raihan attributed the decline in foreign commitments to the July-August shift in the balance sheet, noting the government's cautious approach to new projects.
He pointed out that corruption, especially in foreign loan projects, had been growing, and while commitments and disbursements have decreased, the pressure to repay past loans is increasing.
"The halt in USAID cooperation under the new US administration, which is a growing concern, as Bangladesh has several USAID projects in agriculture, health, and energy," the economist told The Business Standard.
Zahid Hussain, former lead economist of the World Bank's Dhaka Office, said the WB creates this fund every three years for flexible lending. For example, it has announced a $100 billion fund for IDA-21, which is set to start next July. The USA is contributing a large portion of this fund.
"According to the USA's announcement, it has suspended this type of donation for the next three months. However, there has been no indication that it will stop contributing in the future. The US may halt bilateral assistance, but it does not seem to be stopping WB assistance," he told TBS
According to ERD data, Bangladesh received the highest commitment of $914.5 million from the WB in July-December, including a budget support of $500 million. The second-highest commitment came from the ADB at $700 million, followed by Japan with $252.12 million and the AIIB with $160 million.
13% drop year-on-year
According to ERD data, development partners released $3.532 billion in the first six months of FY25, down 13% from $4.06 billion a year ago. Budget support loans are released immediately, but overall funding has decreased.
According to ERD data, the ADB disbursed the most funds in July-December, with $1.05 billion. It was followed by the WB's 800.93 million, Russia's $531.66 million, Japan's $441.08 million, and China's 267.81 million.
Debt repayment pressure is increasing
Debt repayment pressure is rising as Bangladesh faces increasing foreign debt obligations. Despite a decrease in commitments and disbursements from development partners, debt repayments have risen by 26.4% in the first six months of FY25.
According to ERD data, Bangladesh repaid $1.98 billion in H1, compared to $1.567 billion a year ago. Of this, $1.23 billion was for principal repayment, up from $926.2 million last fiscal year.
ERD officials explained that many large project loans taken during the previous government have ended their grace periods, leading to actual repayments. Additionally, interest payments have risen due to market-based loan rates.
Zahid Hussain projected that Bangladesh will need to pay an additional $2.6 billion in principal over the next three years, based on data from 215 projects.
