Govt goes slow on AIIB project loans, opts for budget support

The China-led Asian Infrastructure Investment Bank (AIIB) has approved loans worth $4.62 billion for Bangladesh, but the government seems cautious about project loans from the organisation considering repayment pressure amid dollar crisis.

The government instead is willing to secure budget support to replenish the fast-depleting reserves.

Data from the Economic Relations Division (ERD) show that there are currently 19 projects on the list approved for lending by the AIIB, but the government is in the process of seeking $910 million in loans in the current fiscal year – $510m for two electricity transmission lines and $400 million as budgetary support.

However, the final decision on taking these project loans hinges on the state of the country's economy, said ERD officials, emphasising that if the situation requires additional budgetary support, the project loan amount may be reduced accordingly.

Stakeholders have said the government is implementing a number of projects emphasising power generation but it lags much behind in terms of the development of transmission and distribution systems. This is why transmission lines are getting priority over other infrastructure projects approved by AIIB.

Bangladesh also refrained from obtaining any development project loans from the AIIB In the last fiscal year. During that period, the country acquired only $650 million from the lender as budgetary support to bolster reserves.

The AIIB, billed as Beijing's answer to the World Bank, also provided budget support to Bangladesh for vaccines and other healthcare interventions during the Covid-19 pandemic.

To date, Bangladesh has secured loan commitments or signed loan agreements totaling $3.35 billion for 17 projects from the AIIB, which was established in 2016. As of June 2023, the outstanding loan from this institution stands at $1.50 billion.

An ERD official highlighted that AIIB's lending programme is different from other development lenders like World Bank and Asian Development Bank and its project approval and loan disbursement are simpler and faster compared to others. It does not follow a predefined lending target and AIIB loans can be acquired as needed once a project is prepared for funding.

Yet, the government has chosen to go slow on project preparation for AIIB loans other than those in the power sector, keeping in mind the growing pressure of foreign debt.

Two power sector projects, earmarked for loan agreements with the AIIB, are "Transmission infrastructure development of the southern area of Chattogram division and the Bangabandhu Hi-tech City at Kaliakoir," as well as the "Modernisation and Capacity Enhancement of the BREB (Bangladesh Rural Electrification Board) Network" in the Rajshahi-Rangpur divisions.

The lender has also given primary consent to another power sector project, "Modernisation and capacity enhancement of BREB network" in Chattogram and Sylhet divisions, involving $531 million.

According to ERD sources, the power and energy sector is poised to receive $1.829 billion in loans from the AIIB for six projects, prioritising transmission, and distribution.

Among them, the Madunaghat-Bhulta 765kV Transmission Line Project will receive $460 million, for which the lender has already given its primary consent.

Sources in the Power Grid Company of Bangladesh (PGCB) told TBS that the authorities aim to complete the first high-capacity 765kV transmission line to connect power generated at Cox's Bazar's Maheshkhali to the national grid by 2030. Korean funding will support the Madunaghat-Maheshkhali segment, while AIIB will fund the Madunaghat-Bhulta portion of the line.

Other than the power sector, three more projects, worth about $440m, on urban sanitation and waste management are on the horizon, with the potential to conclude loan deals by next June. 

The AIIB has also given initial approval to provide a $683 million loan for the Western Economic Corridor and Regional Enhancement (WeCARE) programme, which aims to enhance regional connectivity through upgrading 260km of highway mostly in the southwestern region including Kushtia and Jhenaidah.