Loan pledges, disbursements rise amid mounting repayment pressures 

Foreign loan commitments and disbursements to Bangladesh have seen an upward trend during the first seven months of the current fiscal year, according to official data, which also show a significant increase in repayment obligations.

According to a report published by the Economic Relations Division (ERD) on Sunday, development aid commitments surged by 306.1% year-on-year during the July-January period, while disbursements increased by 3.26%. Concurrently, the government's debt repayment amount experienced a significant rise of 44.52%.

Development partners pledged $7.17 billion in new commitments, marking a sizable increase from the $1.76 billion committed during the corresponding period in the previous fiscal year.

ERD officials said the preparations for the various processes required to secure loans have been commendable. 

This success can be attributed to the early initiation of loan agreements with development partners for numerous projects since the commencement of the financial year. In contrast, inadequate preparation in the previous financial year had resulted in the delayed contracting of several projects, they said.

According to ERD data, the majority of commitments, totalling $6.05 billion, came from three key development partners: the Asian Development Bank (ADB), the World Bank, and Japan.

The highest commitment received during the seven months to January was from the ADB, totalling $2.62 billion, followed by $2.02 billion from Japan and $1.41 billion from the World Bank.

During the July-January period, the development aid agencies disbursed a total of $4.39 billion, an increase from $4.25 billion a year ago. 

Meanwhile, in the backdrop of the global scenario, market-based loan interest rates have risen, intensifying the strain on foreign debt repayment.

According to ERD data, the government repaid $1.85 billion in interest and principal to development partners during the July-January period, compared to $1.28 billion in the corresponding period of last year.

Interest payments alone surged by 107.9% in the first seven months of the current fiscal year, with the government paying $760.74 million in interest and $1.09 billion in principal on various loans.

ERD officials mentioned that the Secured Overnight Financing Rate (SOFR) has surged due to the conflict between Ukraine and Russia, exceeding 5%. Previously, it was less than 1%. 

At the same time, Bangladesh's market-based loans are on a gradual rise, leading to increased interest payments for the country.

Around 75% of Bangladesh's loans from the ADB are market-based. Additionally, the country secures loans from the Asian Infrastructure Investment Bank at market-based interest rates. 

Additionally, Bangladesh also acquires market-based loans on a limited scale from the World Bank.

According to ERD data, if the current international interest rates persist, Bangladesh is projected to pay $1.19 billion in interest by the end of the current fiscal year.

In the fiscal 2022-23, the country's interest payments amounted to $944 million, significantly higher than the $469 million in the previous fiscal year.

ERD officials highlighted that the actual payment pressure will escalate alongside interest payments. The conclusion of grace periods for various market support loans and mega projects, such as the Karnaphuli Tunnel and Padma Rail Link, means that the principal for these loans must now be repaid.