Govt pays more foreign debts as commitments, disbursements decline

Infographics: TBS

Commitments and disbursements from development partners have declined in the first seven months of the current fiscal year, while increased foreign debt repayments remain a fresh challenge for the government.

According to Economic Relations Division (ERD) data, commitments fell by 67.2% to $2.35 billion during the July-January period, compared to $7.17 billion in the equivalent period last year, while disbursements decreased by 10.4% and debt repayments rose by 30.3%.

The development partners disbursed $3.94 billion in the first seven months, down from $4.398 billion year-on-year.

Meanwhile, Bangladesh's repayment to development partners rose from $1.856 billion to $2.418 billion, with principal repayment increasing from $1.09 billion to $1.544 billion. Interest payments surged from $160.7 million to $874 million.

ERD officials said the interim government has adopted a strategy of taking fewer foreign loans, leading to a decline in development partner commitments.

Although development partners are willing to offer more loans than last year, the government is prioritising emergency budget support and critical projects, resulting in slower loan agreements and reduced commitments. This strategy is aimed at managing the increasing pressure of debt repayments, as the grace period for many project loans has expired.

The government paid $4.166 billion in principal and $1.35 billion in interest to development partners in the last fiscal year, while receiving $10.739 billion in commitments.

ERD officials noted that, to ease debt repayment pressure, the government is focusing on debt relief alongside reducing commitments. However, due to the current situation in the country, fund disbursement has not been yielding significant benefits.

The pace of foreign loan project implementation has slowed under the new government, with many contractors leaving and project directors being changed, which has affected progress.

Additionally, political instability has stalled development activities, further hindering project implementation. These factors have contributed to a decrease in foreign funds for development projects, according to sources.

Professor Selim Raihan told The Business Standard that the July-August uprising significantly reduced foreign commitments. He noted that the government is cautious about new projects due to past corruption in project-based financing, including foreign loans.

"While commitments and disbursements have decreased, the concern is the rising pressure to repay previous loans, which will increase in the coming years," said economist Raihan, who is also executive director of the South Asian Network on Economic Modelling (SANEM).

He further said Bangladesh needs foreign financing for projects, and if loans are used properly without corruption, they can significantly benefit the economy. However, a reduction in foreign loans raises concerns.

Loan commitments and disbursements

According to ERD data, the World Bank made the highest commitment in the first seven months of the fiscal year, totalling $944.5 million, with $500 million for budget support.

The Asian Development Bank (ADB) committed $700 million, including $600 million for budget support.

Japan committed $252.12 million, and the Asian Infrastructure Investment Bank (AIIB) committed $160 million.

In the July-January period, the ADB disbursed the most at $1.09 billion, followed by the World Bank with $867.64 million.

Japan disbursed $696.32 million, Russia $536.87 million, China $267.81 million and India $80.14 million.