Bangladesh has seen a dramatic 93% decline in foreign loan commitments from development partners in the first four months of the current fiscal year. Between July and October, loan commitments totaled only $254.57 million, compared to $3.628 billion during the same period last year, according to the Economic Relations Division (ERD).
The sharp drop is attributed to the new government’s review of proposed projects for foreign loans, which has stalled the signing of new agreements. ERD officials assure that once the review is complete, the application process for foreign loans will resume, with commitments expected to align with targets.
Increased Loan Servicing
While commitments have decreased, foreign loan repayments have surged. Between July and October, Bangladesh repaid $1.437 billion in principal and interest, exceeding the $1.2 billion in foreign aid disbursed during the same period.
Principal repayments saw a notable increase of 41.2%, rising to $895.58 million from $634.1 million last year. Interest payments also rose, reaching $542.32 million, up from $467.42 million.
A significant portion of the repayments is tied to China’s loans for the Padma Rail Link project, which has contributed to the overall rise in loan servicing costs.
Loan Disbursements Decline
Foreign aid disbursements also decreased by 26% year-on-year, amounting to $1.6 billion from July to October. Among development partners, Japan disbursed the most funds ($266.30 million), followed by the Asian Development Bank ($266.11 million), Russia ($149.53 million), the World Bank ($178.16 million), and India ($63.83 million). Notably, China did not release any funds during this period.
Expert Insights and Future Outlook
Mustafa K Mujeri, Executive Director of the Institute for Inclusive Finance and Development, described the situation as “far from normal.” He noted that the ongoing review of project proposals is slowing the preparatory work required for securing foreign loans. However, he expressed optimism, citing interest from several development agencies in providing project loans and budget support.
The interim government, which took office in August, has received preliminary assurances of loan support from multilateral and bilateral partners. Officials believe that once the review process is finalized, foreign loan commitments will pick up pace, helping to achieve the government’s fiscal targets.
For now, the government faces the dual challenge of addressing increasing repayment obligations while ensuring the timely resumption of foreign loan agreements.
Source : The Business Standard
