Foreign loan commitments drop $4.84b amid rising repayments
Fresh loan commitments fell by 67.3% between July and February, while disbursements declined by 17.3%
Highlights:
- Fresh loan commitments amounted to $2.35b in Jul-Feb
- It was $7.20b in same period of previous fiscal year
- $2.636b repaid to development partners, compared to $2.03b last year
- Development partners disbursed $4.13b, compared to $4.99b last year
- Govt taking fewer new loans to manage debt repayment pressure
Loan disbursements and commitments from development partners dropped significantly in the first eight months of the fiscal year, while debt servicing increased, indicating that, as officials observe, the government is focusing on improving external financial management.
According to Economic Relations Division (ERD) data, commitments for fresh loans fell by 67.3% year-on-year to $2.35 billion from $7.20 billion a year ago.
In stark contrast, the debt repayments increased by 29.9% to $2.636 billion – principal repayment increased from $1.224 billion to $1.962 billion, and interest payments rose from $805.95 million to $944 million.
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Disbursements by development partners declined by 17.3% to $4.13 billion in July-February.
ERD officials said the interim government has decided to reduce foreign loans under the term loan strategy, resulting in decreased commitments from development partners. While partners are willing to offer more loans than in the last fiscal year, the government is only taking loans for emergency budget support and key projects, slowing loan agreements and reducing commitments.
ERD officials further said the government is taking fewer new loans to manage rising debt repayment pressure as the grace period ends, opting to reduce foreign loan intake to alleviate the burden.
The pace of foreign loan project implementation has slowed under the new government, similar to government-funded projects. Contractors have left, directors have changed and political instability has stalled development activities. These factors have hindered progress, resulting in a decline in foreign funds for development projects, according to sources.
Economists believe the July-August turnaround significantly reduced foreign commitments as the government has become cautious about new projects, citing past corruption in foreign loan projects.
While commitments and disbursements have decreased, the pressure to repay previous loans is rising and will continue to increase. Bangladesh still needs foreign financing for projects, and if used properly, foreign loans could play a key role in the economy. However, a decline in foreign loans could be concerning.
Economist Zaid Bakht said the interim government is being cautious in the foreign debt sector, leading to reduced foreign debt commitments. The growing pressure to repay loans from past mega projects and budget support is another factor. He expects the government's debt burden to ease in the future due to fewer new commitments.
According to ERD data, the government received the highest commitment of $944.5 million from the World Bank in July-February, followed by $700 million from the Asian Development Bank, $252 million from Japan, and $160 million from the Asian Infrastructure Investment Bank.
During the same period, ADB disbursed the most, releasing $1.13 billion, followed by the WB with $959.14 million. Japan released $728.39 million, Russia $536.87 million, China $267.81 million, and India $96.80 million.
