Foreign debt

Loan repayment to double within 3 years

Bangladesh will have to pay huge amount of loan with capital and interest in next 10-15 years and the volume of loan repayment will double within next three years due to rise in labiality.

Loans taken from Russia, China and India with tough conditions will cause more headaches and loan agreements of over Tk 3.5 trillion (350,000 crore) have been signed with these three countries so far.

Usually, loans taken from World Bank, Asian Development Bank (ADB), Japan and various countries and donor agencies have a repayment period of 30-40 years.

On the other hand, loans taken from China, Russia and India have half of this repayment period though interest rate is almost same.

Various infrastructures including Rooppur Nuclear Power Plant, Karnaphuli river tunnel in Chattogram, Shahjalal fertiliser factory and Dasherkandi Sewage Treatment Plant are being constructed on the loans from these three countries.

Loan repayment of most of these projects will begin after their grace periods ends in next 2-3 years.

According to Economic Relations Department (ERD) sources, Bangladesh paid a foreign debt of US dollar 2.01 billion (201 crore) including capital and interest in the outgoing fiscal while foreign debt is likely to surpass US dollar 4 billion (400 crore) in 2024-25 fiscal.

Talks over Bangladesh’s loan with tough conditions arouse following the recent economic crisis in Sri Lanka. Experts said there is no fear of a big crisis for Bangladesh at this moment, but the country needs to be more careful over its monetary and project management.

Speaking to Prothom Alo, former World Bank Dhaka office chief economist Zahid Hussain said it is obvious an additional pressure will appear within next couple of years after taking these loans with tough conditions.

On an average, over US dollar 2 billion will have to be paid for debt owed to China, Russia and India annually after their grace period ends, he added.

Zahid Hussain said momentary management will have to be fixed now so that no additional pressure will arise all of sudden for the repayment of these debt and existing foreign currency reserve management will have to be fixed too.

How much taka will be repaid against each debt needs to be fixed now. Lessons must be learned from the mistake of Sri Lanka, he observed.

Payment of Russian debt begins in 2026

The Rooppur Nuclear Power Plant is one of the government’s fast-track projects. Began in 2019, work on this project will end in 2023. The project cost is 1.13 trillion (113,092 crore).

Bangladesh signed a 20-year loan agreement with Russia on 26 July 2016 for this project and the government took a loan of US dollar 11.38 billion (1,138 crore) or approximately Tk 980 billion (98,000 crore) after adjusting with inflation.

Under the agreement, Bangladesh enjoys first 10 years as grace period, ending in 2026. After that, the country will pay Russia about Tk 1 trillion (100,000 crore) including capital and interest for next 10 years.

Bangladesh will also have to bear a 2 per cent service charge for London Interbank Offer Rate (LIBOR). Usually, the LIBOR is 2.5-3 per cent.

As of March this year, Russia disbursed US dollar 4.52 billion (452 crore) and transaction remains suspended now for the Russia-Ukraine war.

Payment of the Russian debt on Rooppur Nuclear Power Plant will start after four years, with Tk 100 billion (10,000 crore) to be paid in two instalments annually and the debt will end in 2036.

China finances 12 projects

ERD said the government has signed loan agreements of US dollar 17.54 billion with China in the last 10 years to implement 12 projects. Of them, the country signed a loan agreement with China on 14 November 2016 for the construction of Bangabandhu tunnel under the Karnaphuli river in Chattogram.

China gave a loan of US dollar 1.95 billion to this project on condition of paying back by 15 years, including the grace period, with interest 2.2 per cent. The construction work of this project is now at the final stage. Repayment of this loan will start this fiscal and end by 2031.

The remaining projects are: development of Shajalal fertiliser factory, Dasherkandi sewage treatment plant, Info Sarkar-3 and the expansion and distribution of electricity connection with the modernisation of Telecommunication Network for Digital Connection. The major portion of the loan has already been disbursed.

As the grace period of the three projects---Shajalal fertiliser factory, Padma water treatment plant and information technology, has ended, the government has started repaying the loan to China. So far, US dollar one billion has been repaid.

The loan payments of the remaining projects will start this or next fiscal year and will have to be repaid by next 10 years.

Bangladesh owes US dollar 7.36b to India

Under the three Lines of Credit (LoC) agreements, Bangladesh signed deals with India worth US dollar 7.36 billion in the last 12 years. The country will have to pay the loan by 15 years, including the grace year, with 1 per cent interest. However, under the Indian loan scheme, it is mandatory to make 65 per cent of purchases from India.

Under their finance, the works of over 30 projects in the country are underway. So far, more than US dollar one billion has been disbursed. The country has already paid over US dollar 100 million to India.

Altogether, Bangladesh took loans of US dollar 36.28 billion in the last decade from India, Russia and China, which is equal to Tk 3.43 trillion at current dollar price [Tk 94.70]. After three to four years, the country will have to pay an average of Tk 150 to 200 billion yearly in foreign currency.

State minister for planning Shamsul Alam told Prothom Alo, "We will not make the same blunder as Sri Lanka. We have made relatively a few mistakes in managing the economy. Despite the tough conditions, it will not be difficult for us to repay the loans of India, China and Russia. We have enough foreign currency in reserve. These loans have been taken considering the overall productivity of the country. The country's economy has its own strength and stability.”

Highest loan payment in 2029

The volume of loan payment is increasing gradually. According to the Economic Relations Division (ERD), the government will have to pay US dollar 2.78 billion in this fiscal, which will jump to 5.15 billion in 2029-30. From then, the volume of repayment will decrease.

If the current trend continues, the accumulated debt of Bangladesh will continue to increase in the next three years.

In fiscal 2024-25, the amount of accumulated debt will stand at US dollar 85.24 billion, which will decline to US dollar 72.91 billion in 2029-30 fiscal.

However, ERD did not take the fluctuation of dollar price into account while estimating the costs. Meanwhile, nearly US dollar 48 billion is in the pipeline, which is equal to Tk 4.04 trillion.

*This report appeared in the print and online edition of Prothom Alo and has been rewritten in English by Hasanul Banna and NH Sajjad