Foreign loan commitments plummet 99% in FY25 Q1

Foreign loan commitments to Bangladesh saw a sharp decline of 99.05% year-on-year in the first three months of FY25, according to the data of the Economic Relations Division (ERD).

The country received commitments for only $27.41 million in grants during the July-September quarter of this fiscal, compared to $2.88 billion in grants and loans in the same period last year. This significant drop in loan commitments was linked to the July uprising that led to the end of Sheikh Hasina’s autocratic rule in August, and a consequent review of foreign-funded projects by the interim government.

ERD officials said the political unrest during July and August also affected project execution, causing delays and a reduction in disbursements. Many projects funded with foreign loans have been delayed due to the absence of foreign consultants and staff, further contributing to this slowdown. The government is currently reassessing loan proposals, resulting in a temporary halt in new loan agreements.

Officials concerned said after completing the review, the government will begin the loan application process and expects to meet its targets. Multilateral and bilateral development partners, such as the World Bank and the Asian Development Bank (ADB), have expressed their willingness to support the country with loans for various projects.

The interim government is also prioritising foreign-funded projects, seeking to implement the critical ones and discontinue the unnecessary ones. ERD has asked agencies to submit a priority list of foreign-funded projects, which will help determine where foreign loans should be allocated.

During the first quarter of this fiscal, foreign loan disbursements fell by 33.98%, with Bangladesh receiving around $846 million, down from about $1.28 billion in the previous year.

Japan disbursed the highest amount of foreign aid worth $210 million during this period, followed by the ADB ($156 million), Russia ($149.36 million), the World Bank ($78.44 million), and India ($45.21 million).

Despite the decline in loan disbursements, the government is hopeful that foreign aid will increase once the review is complete and the loan application process resumes. It is expected that Bangladesh will secure budgetary support, including $1 billion from the World Bank and ADB, to help cover oil and gas arrears and support other reforms.

Interest and principal repayments on foreign loans also rose sharply in the July-September period of this fiscal, with repayments increasing by 29.41% compared to the same period last year.

The country’s repayment of foreign loans surged to around $1.12 billion, surpassing the amount received during that period. This is partly due to repayments for China’s loans on the Padma Rail Link project.

The government repaid $685.50 million in principal on various loans during this time, up from $492 million in the previous year. Meanwhile, interest payments on foreign loans during that time rose to about $441 million, compared to $378.46 million last year.

Dr Abdur Razzak, chairman of the Research and Policy Integration for Development (RAPID), told the Daily Sun, “The drop in loan commitments can be attributed to several factors, with one of the key reasons being that July and August were not normal times due to political unrest.

“On the other hand, the government has also adopted a more cautious monetary policy. This approach is aimed at slowing down the economy slightly to control inflation. As a result, loan commitments have also been affected. However, I am optimistic that as the economy stabilises, loan commitments will increase. We can expect a significant rise in commitments by October-November.”

Planning Adviser Professor Wahiduddin Mahmud recently told reporters, “We will quickly complete the review of foreign-funded projects. We need foreign funding, and there are projects – involving billions of dollars – awaiting approval. However, not all foreign-funded projects are necessarily good ones.”

In FY24, Bangladesh secured $9.88 billion in foreign aid commitments from development partners for project funding and budget support, an increase of 8.92% from FY23.