Foreign loan commitments up 9% in FY24, yet remained below $10b

Bangladesh secured $9.88 billion in foreign aid commitments from development partners for project funding and budget support in the just-concluded 2023-24 fiscal year, marking an 8.92% increase from the previous fiscal year, according to Economic Relations Division (ERD) data.

ERD sources said the government could have secured more credit from foreign lenders, but it decided not to because interest rates are too high right now.

In the 2022-23 fiscal year, Bangladesh secured $9.07 billion in commitments.

Foreign aid commitments topped $10 billion in several fiscal years in the past. In FY22, Bangladesh received $10.17 billion in aid commitments. 

The highest amount ever secured was $17.96 billion in the 2016-17 fiscal year. This was due in part to a $11.38 billion loan agreement with Russia for the Rooppur nuclear power project.

ERD officials said in FY24, foreign aid commitments remained below $10 billion, partly due to the government's reluctance to borrow from development aid agencies offering market-based loans.

Development aid agencies such as the Asian Infrastructure Investment Bank (AIIB), the New Development Bank (NDB), and the Asian Development Bank (ADB) exclusively offer loans using the Secured Overnight Financing Rate (SOFR) as a reference rate.

The Secured Overnight Financing Rate (SOFR) has risen significantly since the outbreak of the Ukraine-Russia war. Currently, the SOFR exceeds 5%, compared to less than 1% before the conflict began.

No project funding from AIIB in last two fiscals 

Over the past two fiscal years, the government has not secured any development project loans from the AIIB. 

Projects like the Transmission Infrastructure Development in the southern area of Chattogram Division and Bangabandhu Hi-Tech City at Kaliakoir were expected to be included in the ERD's April Borrowing Programme for FY24 with a proposed $160 million from AIIB. However, these plans were dropped from the list in May.

Instead of project loans, the government opted for a $400 million budget support deal with the AIIB in FY24. 

According to ERD sources, 14 projects are in the pipeline for AIIB funding, with negotiations completed and agreements pending. 

Officials at ERD indicated that the government's decision to avoid AIIB loans primarily stemmed from concerns over interest payment pressures.

Govt cautious about taking NDB loans as well

The government intended to sign its first loan agreement with the NDB in FY24 but deferred the plan due to high interest rates.

The Executive Committee of the National Economic Council (Ecnec) has already approved a project, the Expanded Dhaka City Water Supply Resilient Project, to be funded by the NDB. 

Originally targeted for a $320 million loan agreement in April of FY24, the contract was subsequently postponed. ERD anticipates finalising this inaugural loan agreement with NDB in the new fiscal year.

No loan agreement with China in last fiscal

No loan agreement was signed with China in FY24. The most recent agreement amounting to $276.26 million was signed in FY23.

In 2016, during the visit of the Chinese President to Bangladesh, a Memorandum of Understanding (MoU), titled "Strengthening and Production Capacity Cooperation", was signed, guaranteeing 27 projects totalling $20 billion. To date, loan agreements for nine projects totalling $8.076 billion have been signed.

The ERD's Borrowing Programme includes nine projects funded by China, several of which have already been approved in Ecnec meetings. 

ADB, WB, and Japan pledged big amounts 

Bangladesh secured a $2.941 billion aid commitment from the Asian Development Bank in FY24, including two budget support components totalling $650 million and loans for 11 development projects.

The World Bank pledged to provide $2.618 billion in loans, which incorporate a $500 million budget support aid.

Japan also pledged loans totalling $2.039 billion in FY24.