Western safeguards, Chinese momentum: Bangladesh’s search for balance and resilience in development financing
As Bangladesh seeks to secure billions in external financing for its growth ambitions, it must navigate the contrasting models of Western lenders and Chinese investors — each offering opportunities, but also significant risks
Bangladesh stands today at a defining crossroads in its development journey. Having already crossed the threshold of a lower-middle-income country, it now aspires to become a middle-income economy within the coming decade.
But that ambition requires massive investment — billions of dollars in infrastructure, energy security and digital transformation.
According to the World Bank, Bangladesh will need an additional $22 billion in investment each year by 2026 if it is to meet the Sustainable Development Goals (SDGs). Such staggering sums are well beyond the reach of domestic resources alone. Inevitably, dependence on external finance has become not just a supplement but a lifeline.
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This dependence has placed Bangladesh squarely between two global camps of creditors — powerful, but strikingly different in character.
On one side stand the traditional Western-led institutions such as the World Bank, the International Monetary Fund (IMF), the Asian Development Bank (ADB), and bilateral partners like Japan and the US.
On the other is China, the rising giant of the Global South, advancing its strategic and commercial interests under the vast umbrella of the Belt and Road Initiative (BRI).
The philosophies, conditions and strategies of these two camps diverge fundamentally — and the way Bangladesh navigates them will shape the nation's economic and political destiny.
Western loans: Reform with strings
The Western model of lending is anchored in governance, reform and institutional strengthening. Loans and grants from the World Bank, IMF, ADB or bilateral partners typically arrive tied to strict conditions: reducing subsidies, reforming state-owned enterprises, restructuring financial institutions, and promoting transparency and democratic accountability. In many ways, this is an extension of Western "soft power".
There are undeniable advantages. Western funding has supported transformative projects in Bangladesh: the metro rail in Dhaka, the Matarbari deep-sea port, and countless social-sector initiatives. Moreover, stringent safeguards on environment and social protection have helped shield vulnerable communities from the worst excesses of rapid development.
But there is a darker side. The "one-size-fits-all" prescriptions of Washington or Tokyo often overlook local realities.
In Sri Lanka, Ghana and Zambia, austerity conditions attached to IMF packages strained ordinary citizens, sparking social unrest. Bangladesh too, is not immune.
The recent IMF loan tied to the withdrawal of fuel subsidies and reform of the banking sector has unleashed fresh economic pressures.
Yet here lies the deeper truth: Bangladesh's banking sector was not crippled by bad luck but gutted by years of political capture, collusion, and what can only be called economic cannibalism.
Reforms in this sector are not merely technical fixes; they represent a test of whether Bangladesh can uproot a culture of impunity that corrodes governance at every level.
Western loans, therefore, do not just move money — they pry open the cracks in national policy and expose the moral bankruptcy of vested interests.
Chinese loans: Speed and shadows
China's approach could not be more different. Often referred to as the "Beijing Consensus", it prides itself on non-interference. Beijing does not impose overt conditions about governance, human rights or policy alignment. What it offers instead is speed and flexibility. Where Western lenders deliberate for years, Chinese loans can materialise quickly — delivering visible results.
Bangladesh has benefited from this. Chinese finance has underpinned the Padma Bridge rail link, the Karnaphuli underwater tunnel and several power plants. These projects, completed or advancing at a record pace, have reshaped the country's infrastructure landscape. For policymakers eager to show tangible progress, China's model is attractive.
Yet speed has its price. Chinese loans often come bundled with conditions that lock in Chinese contractors, suppliers and materials. A large portion of the borrowed money, therefore, circulates back to China, raising questions about who truly benefits.
Western loans can help build stronger institutions; Chinese loans can deliver faster infrastructure. Both are valuable, but neither is a substitute for integrity, accountability and sovereign discipline. Bangladesh must ensure that borrowing fuels liberation, not dependence; opportunity, not burden.
Worse still, many of these contracts remain shrouded in secrecy, eroding transparency and public trust.
The cautionary tales are sobering. Sri Lanka's Hambantota port had to be leased to China for 99 years after Colombo failed to service the debt. Zambia too, fell into a debt crisis exacerbated by opaque Chinese loans.
Bangladesh has repeatedly assured its citizens it will not fall into a "debt trap". Still, with external borrowing rising faster than export earnings, the warning signs are there. The question is not whether Bangladesh intends to avoid such a trap, but whether it has the discipline and foresight to do so.
Bangladesh's pragmatic balancing act
So far, Bangladesh has pursued a pragmatic dual strategy — drawing on both Western and Chinese financing. Western institutions continue to anchor major projects such as the Matarbari port or metro rail, while China powers energy plants, tunnels and rail links.
The country has reaped dividends from this mixed approach. But it has also imported risks from both sides.
Western loans tie Bangladesh into a web of policy reforms that can strain the social contract. Chinese loans tie it into opaque deals that risk undermining sovereignty.
Both camps, in their own way, press the country to confront uncomfortable questions about governance, accountability and long-term sustainability.
What Bangladesh must do
Bangladesh's path forward is clear in principle, but challenging in practice. Diversification is essential. Relying too heavily on either Washington or Beijing is dangerous. India, the Middle East and new multilateral platforms should all become part of a broader financing strategy.
At the same time, domestic investment must be unleashed through stronger public-private partnerships. Every dollar raised locally is one less borrowed abroad.
Transparency is non-negotiable. No contract—Chinese, Western or otherwise—should remain hidden from Parliament or the public. Sunlight deters corruption, strengthens accountability and restores public trust. Development cannot thrive in the shadows.
Equally critical is local participation. Foreign loans should not simply finance foreign firms. If local workers, contractors and suppliers remain sidelined, the benefits of debt evaporate abroad. By ensuring local involvement, Bangladesh can turn external borrowing into a platform for skills transfer and domestic economic vitality.
Above all, the country must focus on boosting exports. At present, nearly 85% of Bangladesh's export earnings come from garments — a dangerously narrow base.
To sustain debt repayments and build resilience, the economy must diversify into information technology, pharmaceuticals, agriculture, shipbuilding and leather. Without such diversification, every downturn in the global garment market becomes a national vulnerability.
Finally, Bangladesh's institutions must rise to the challenge.
The Economic Relations Division and the Ministry of Finance must evaluate every loan for its long-term economic and political implications.
Short-term gains must never be allowed to mortgage future stability.
The real test of leadership is not securing a loan but ensuring that it strengthens sovereignty rather than undermines it.
As things stand, Bangladesh's development journey resembles a turbulent river, fed by two competing currents — Western loans laden with conditions, and Chinese loans flowing with speed but carrying shadows. To harness both without capsizing, the nation needs a steady hand at the helm.
That hand must be transparent, accountable and guided by foresight.
The truth is simple but profound. Western loans can help build stronger institutions; Chinese loans can deliver faster infrastructure. Both are valuable, but neither is a substitute for integrity, accountability and sovereign discipline. Bangladesh must ensure that borrowing fuels liberation, not dependence; opportunity, not burden.
At this historic juncture, the nation does not need blind attraction to Beijing or Washington — what it needs is a sovereign, calculated and honest development strategy. That, more than anything else, will be its greatest diplomatic and economic triumph.
Dr Mohammad Omar Farooq is Professor and Head of the Department of Economics, United International University.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
