The Sheikh Hasina-led government has borrowed money more for unnecessary projects than necessary ones over the past 15 and a half year, creating pressure on the interim government to repay.
Since the interim government took the power, it started revising projects. Therefore, the money flow has decreased for the projects. And the number of project approval also decreased as the government approves only after scrutinizing proposed projects.
In consequences, the disbursement and commitment of foreign loans have slightly decreased in recent months. But, the release of budget support funds by the World Bank (WB) and Asian Development Bank (ADB) in December has boosted the pace of foreign loan disbursements.
The latest update from the Economic Relations Division (ERD) reveals that $3.5324 billion in foreign loans were disbursed in the first six months of the current fiscal year (July to December). In contrast, $4.06 billion were disbursed during the same period last year.
Meanwhile, $1.9817 billion in foreign loans were repaid in the six-month period, compared to $1.56 billion repaid in the previous fiscal year. Loan repayments have increased by $420 million compared to the same period last year, of which principal repayments alone rose by $310 million.
During this period, only $2.29 billion in loan commitments were made, significantly lower than the $6.98 billion committed in the same period the previous year—a decline of 67.11% in foreign loan commitments.
The increased burden of loan repayments is significantly driven by the interest payments on previously borrowed loans. According to ERD data, in the first six months of the current fiscal year, $747.5 million [Tk 8,938.96 crore] was paid as interest alone. In the same period of the previous fiscal year, $641.6 million [Tk 7,056.12 crore] was paid as interest.
The data also shows that in the first half of the 2024-25 fiscal year, the government repaid $1.23 billion [Tk 14,736.42 crore] in principal loans. During the same period in the 2023-24 fiscal year, $926.1 million [Tk 10,184.54 crore] was repaid in principal. Additionally, Tk 11,601.83 crore was paid in interest.
Despite the rising pressure from principal and interest repayments, the disbursement of funds has decreased, adding further strain to the situation.
During this period of a loan crunch, the ADB has emerged as the largest disburser, providing $1.05 billion. The WB disbursed the second-highest amount, providing $800 million, which includes $500 million in budget support from the WB and $600 million from the ADB.
Russia contributed $531.6 million, followed by Japan with $440 million, China with $267.8 million, and India with $72.1 million. Additionally, other donor organizations, including the Asian Infrastructure Investment Bank (AIIB), disbursed a total of $350 million.
According to ERD data, development partners pledged $2.2986 billion in loans for various projects during the first six months of this FY, compared to $6.9898 billion in the same period last year. This marks a sharp decline of $4.6912 billion in loan commitments over the course of a year.
During this period, the highest loan commitment came from the International Development Association (IDA), amounting to $914.5 million. Additionally, $700 million was committed by the ADB, $252.1 million by Japan, $160 million by the Asian Infrastructure Investment Bank (AIIB), and $272 million by other organizations.
According to ERD officials, numerous foreign loan projects—both essential and non-essential—were undertaken in the previous FY, especially before the election, resulting in a higher number of loan agreements and commitments.
“However, with the new government prioritizing thorough evaluations before approving projects, the number of loan agreements has significantly decreased. They expect the commitments to increase soon.”
Dr Mustafa K Mujeri, Executive Director of the Institute for Inclusive Finance and Development (InM) attributes the decline in loan commitments and disbursements to delays in project preparation and lack of progress.
He explains: “Funds are disbursed by development partners based on project progress. Since little work has been done in the past two months due to political movements, disbursements have also been low.”
He expressed his hope saying; “It [decreases in disbursement amount] is temporary. As work progresses, disbursements will increase accordingly.”
Translated by Afsar Munna
