Foreign loan servicing exceeds disbursements as commitments slow

Bangladesh's foreign loan commitments from development partners plummeted by a staggering 99% year-on-year in the first three months of the current fiscal year, according to data from the Economic Relations Division (ERD).

At the same time, the country's repayments surpassed the disbursements from its development partners.

ERD officials said the interim government is reviewing proposed foreign-funded projects, leading to a decrease in commitments due to a drop in new loan agreements. 

Additionally, political instability has slowed down the implementation of development activities, resulting in a decline in project execution. Meanwhile, servicing has increased as repayments for many loans taken by the previous government have commenced.

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."

"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," he added. 

According to ERD data, commitments from development partners totalled only $27.41 million in July-September, a sharp decline from $2.88 billion during the same period last year. In contrast, development partners disbursed $846.12 million, while Bangladesh repaid $1.126 billion to its lenders.

ERD officials said the sharp decline coincided with the July mass uprising, which culminated in the end of former prime minister Sheikh Hasina's prolonged autocratic rule on 5 August. Additionally, all projects proposed by the government for foreign financing are undergoing re-evaluation, resulting in loan agreements being renegotiated with development partners.

ERD officials said the government has re-evaluated loan proposals. Once the review is completed, the loan application process will begin, and the government is optimistic that commitments will meet the targets.

Since the interim government took office on 8 August, 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 greater possibility of Bangladesh securing foreign loans, said ERD officials.

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

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.

Repayments exceed loan disbursements

According to ERD data, in the September quarter, Bangladesh's repayment of foreign loans surpassed the amount disbursed by development partners. The country received $846.12 million while repaying $1,126.51 million in principal and interest during the same period.

ERD officials said the political unrest stemming from student protests impacted the execution of some projects, contributing to the decrease in disbursements compared to the same period last year. They 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.

According to ERD data, foreign aid disbursements in July-September have decreased by 34% compared to the same period last year. Development aid agencies disbursed $846.12 million, down from $1,281.72 million.

ERD officials also reported 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 29% in July to September compared to the same period last year. In the first three months of the previous fiscal year, Bangladesh repaid $870.46 million, whereas this year, the amount has climbed to $1,126.51 million.

Principal repayments saw a sharp increase of 39.3%, with $685.5 million repaid in July to September, compared to $492 million during the same period last year. Interest repayments also increased, amounting to $441 million, up from $378.46 million, the data shows.

Disbursements by development partners in July

According to ERD data, Japan disbursed the highest amount of foreign aid in the July-September period, releasing $210.09 million. This was followed by the ADB, which provided $156.75 million, Russia with $149.36 million, the World Bank with $78.44 million, and India with $45.21 million.