Foreign loan commitments to Bangladesh have plummeted in the first seven months of the 2024-25 fiscal year, with international lenders exercising caution amid economic and political uncertainty.
Data from the Economic Relations Division (ERD) reveals that from July to January, commitments from multilateral and bilateral lenders amounted to $2.35 billion, a sharp decline from $7.17 billion in the same period of the previous fiscal year.
During this period, eight loan agreements and 31 grant agreements were signed, with the World Bank committing the highest amount at $940 million, followed by the Asian Development Bank (ADB) at $700 million.
Additionally, the United States and Japan pledged $450 million, while Asian and JICA lenders committed $160 million.
Not only have loan commitments dwindled, but disbursements of previously pledged foreign loans have also contracted.
In the first seven months of the fiscal year, foreign loan disbursements totalled $3.94 billion, down from $4.40 billion in the same period last year—a decline of $460 million or 10.45%.
The ADB accounted for the largest disbursement, amounting to $1.10 billion, followed by the World Bank at $870 million, and the United States and Japan collectively disbursing $760 million.
Notably, China did not release any significant funds during this period. The European Union (EU) disbursed $690 million, while Asian and JICA lenders released $410 million. Apart from the EU, all other sources recorded a downturn in loan disbursements.
Economists attribute the decline in foreign loan commitments and disbursements to the prevailing economic crisis.
They assert that Bangladesh has yet to recover from its economic challenges, with declining industrial production and private sector credit growth exacerbating the situation.
Additionally, political uncertainty and concerns over law and order have further deterred both domestic and foreign investors. As a result, multilateral and bilateral lenders have reduced their loan commitments and disbursements.
Without improvements in the country’s political and economic climate, the inflow of foreign aid may continue to shrink.
Former Chief Economist of Bangladesh Bank and Executive Director of the Institute for Inclusive Finance and Development (INM), Mustafa K Mujeri, noted that the current interim government is in place for a short tenure, whereas an elected government’s term spans five years.
Any incoming government is expected to introduce new policies and amend existing ones, creating uncertainty that discourages foreign lenders from making long-term commitments.
Mujeri also highlighted that the economy remains stagnant, and government ministries responsible for economic affairs are preoccupied with crisis management rather than development project implementation.
Given this situation, expecting substantial foreign aid disbursement would be unrealistic. While some multilateral lenders may release limited funds for ongoing short-term initiatives, bilateral lenders are likely to adopt a wait-and-see approach.
With domestic investors displaying reluctance to invest, foreign lenders are even more cautious.
If this uncertainty persists, commitments and disbursements from foreign lenders could further decline until economic stability is restored.
Despite the decline in commitments and disbursements, Bangladesh’s foreign loan repayments have increased.
In the first seven months of the fiscal year, the country repaid $2.42 billion, comprising $1.55 billion in principal repayments and $870 million in interest payments.
This marks a 30% increase from the $1.86 billion repaid during the same period last year.
ERD officials anticipate that by the end of the fiscal year, total debt repayment could exceed $1 billion.
The repayment burden is expected to intensify in the coming years, as the cost of interest payments has risen due to currency depreciation.
Furthermore, the financial strain of repaying loans secured for development projects is likely to increase.
Analysts argue that sluggish project implementation has contributed to the decline in new foreign loan commitments.
However, if the government successfully finalises its ongoing reform initiatives, foreign development partners may resume their financial support.
The previous administration took substantial foreign loans for mega projects, many of which have been completed, while several remain under construction.
With repayments for these projects already underway, the country has been grappling with mounting foreign loan repayment pressures over the past two years, straining both foreign exchange reserves and overall financial stability.
The interim government is also facing the burden of outstanding debts and arrears.
To mitigate this pressure, it has approached the International Monetary Fund (IMF), ADB, World Bank, and other development partners for additional financial support.
However, the IMF has deferred its loan tranche disbursement until June due to unmet conditions.
According to the Implementation, Monitoring, and Evaluation Division (IMED) of the Planning Ministry, the Annual Development Programme (ADP) implementation rate in the first seven months of the fiscal year stood at 21.52% of the total allocation, a decline from 27.11% in the same period last year.
The total ADP allocation for 2024-25 amounts to Tk2.78 lakh crore, of which Tk59,877 crore was spent between July and January.
In January alone, ADP expenditure amounted to Tk9,874 crore, equivalent to 3.55% of the total allocation, compared to 4.63% or Tk12,724 crore in January last year.
Sources from the Ministry of Finance indicate that the revised budget for 2024-25 is in its final stages, with the government planning to cut development expenditure from Tk2.65 lakh crore to Tk2.16 lakh crore.
The projected foreign loan component in the revised budget is set at Tk81,000 crore. However, given the declining trend in foreign loan inflows, it remains uncertain whether this target will be met.
