Govt to take $1.47b in non-concessional loans for 7 projects

The government is taking non-concessional loans worth $1.47 billion for seven projects. This was approved in a meeting of the Standing Committee on Non-Concessional Loan today, held at the ERD conference room in Sher-e-Bangla Nagar, chaired by the Finance Adviser.

A non-concessional loan from a development partner such as the World Bank or the Asian Development Bank (ADB) is a loan provided at or near market-based interest rates and terms. Unlike a concessional loan, it does not include a significant "grant element" or subsidy.

According to the IMF, any loan with a grant element of less than 25% is considered a non-concessional loan.

ERD officials said that because the current Secured Overnight Financing Rate (SOFR) is high, the grant element of market-based loans is decreasing. However, if the grant element changes, it will fluctuate over time, affecting the flexibility of the loan.

At the Standing Committee meeting, approval was also granted for three new ADB-financed loans totaling $649 million. These include Network Northwest Distribution Modernisation Project: $91 million, Chattogram-Dohazari meter-gauge railway conversion to dual-gauge: $508 million, and Khulna Water Supply Project (Phase-2): $154 million.

According to the ERD report, for the Chattogram-Dohazari railway conversion project, a draft loan agreement and related documents were negotiated on 24 August, aiming for $508 million in Ordinary Capital Resources (OCR) Regular loans and $180 million in Concessional OCR loans.

The loan has a maturity period of 25 years with a 5-year grace period. The interest rate is SOFR plus lending spread plus maturity premium, with a commitment fee of 0.15%.

Based on the SOFR rate of 4.39% on 16 September 2025, along with the lending spread and maturity premium, the proposed loan's grant element is 0.86%, classifying it as a non-concessional loan.

For the Khulna Water Supply Project (Phase-2), ADB proposes a $154 million loan, consisting of $100 million non-concessional loans, $50 million OCR, and $4 million in grants. Loan negotiations were held on 15 July.

The $50 million OCR loan has a 25-year maturity and a 5-year grace period, with interest at SOFR plus lending spread plus maturity premium, and a 0.15% commitment fee. The grant element, based on the SOFR rate of 4.39% and applicable lending spread and maturity premium, is 1.05%. This proposal was presented to and approved by the Standing Committee.

For the electricity sector, the Northern Electric Supply Company (NESCO) project "Network Northwest Distribution Modernisation Project" involves a $91 million non-concessional loan. Out of a total $113.58 million, $91 million is OCR. Based on SOFR 4.39%, lending spread 0.50%, and maturity premium 0.10%, the grant element is 2.94%, below 25%, thus non-concessional. The Standing Committee approved this on Wednesday.

Beyond the three new loans, four existing loan proposals were also approved by the Standing Committee. This includes an Islamic Development Bank (IDB) loan under the Road Transport and Highways Department for the project "Construction of five Climate Resilient Bridges in Mymensingh Division, Bangladesh" for $241.3 million.

The loan has a 20-year maturity, 5-year grace period, and an interest rate calculated as SOFR plus contractual spread (0.60%), funding spread (0.80%), and risk premium (0.30%), totalling 1.70% mark-up, yielding an overall rate of 5.85594%. Considering the SOFR rate of 4.15% on 5 May and forward lease terms, the grant element is 10.03%. While the proposed loan is concessional, under forward lease and package loan considerations, it becomes non-concessional.

The Development Program-Subprogram 2 "Climate Resilient Inclusive" project received $400 million budget support from AIIB, approved on Wednesday.

Additionally, under European Investment Bank (EIB) financing, the Dhaka Environmentally Sustainable Water Supply project received €70 million, and the Saidabad Water Treatment Plant Project (Phase III) received €90 million in loans, all approved by the Standing Committee.