Bangladesh forwarding for high-cost loans

Zarif Mahmud : Being a Least Developed (LDC) and low-income country, the World Bank, Asian Development Bank (ADB) and Japan once gave Bangladesh loans at very low interest rates. However, interest rates on loans from these three sources have also increased over the past few years as middle-income countries are emerging and transitioning from LDCs. Bangladesh currently has $41 billion in debt in its pipeline. Almost half of these loans have burdensome terms or high interest rates.
According to the Economic Relations Department (ERD), the amount of foreign loans in the pipeline at the end of the last financial year was $38.4536 billion. However, new loan commitments from July to December were $6.99 billion. And at this time, the discount was $4.64 billion. At the end of last December, the amount of debt in the pipeline stood at $41.3797 billion.
Among the loans in the pipeline are institutions like the Asian Infrastructure Investment Bank (AIIB), Islamic Development Bank (IDB), besides Russia and China, with tougher terms or higher interest rates. In addition, the World Bank and ADB have started lending on strict terms. Among them, the interest rate of only $2.348 million in the Climate Smart Agriculture and Water Management project is 4.82 percent. Besides, 3.10 percent interest is being charged on electricity distribution modernization project. The World Bank will lend $119 million to the project.
Meanwhile, from July 1982 to August 2018, the interest rate of World Bank loans was 0.75 percent. The company charged 0.50% service charge. However, since September 2018, World Bank has 1.25 percent interest rate and 0.75 percent service charge on most loans. The interest rate is two percent. Besides, the World Bank is also charging 0.50% commitment charge.
On the other hand, the interest rate on most of ADB’s loans was two percent. The company charged zero and 20 percent service charge. However, for the past few years, ADB has been lending to Bangladesh on commercial terms as well. Sofor +0.76 percent is taking the highest interest in this case. Currently SOFAR (Secured Overnight Financing Rate) is 5.32 percent. In this, the interest rate of ADB’s loan is about six percent. Again, the Japanese government used to keep the loan interest rate at 0.01 percent. However, it has increased from 0.60 percent to 1 percent.
Apart from this, the interest rate on AIIB loans is LIBR+1.6 percent. Currently Libor (London Interbank Offered Rate) is 5.42 percent. In this, the interest rate of AIIB’s loan is more than 7 percent. Russia’s Rooppur nuclear power plant loan has an interest rate of LIBR+1.75 percent. The interest rate of this loan is more than seven percent. And China’s loan interest rate is two to three percent. There is a service charge or commitment charge. However, the interest rate on neighboring country India’s sovereign debt (LoC) is one percent.
According to ERD data, the World Bank had the largest loan in the pipeline at the end of last December. The agency has a pledged loan of $8.5 billion for Bangladesh. The second-ranked Japanese government has a pledged debt of $7.8791 billion. ADB’s debt in the pipeline is $5.7525 billion and India’s $5.7108 billion.
Russia’s debt remains $4.8472 billion, China’s $3.2137 billion, AIIB $1.6033 billion and other institutions $3.7631 billion. However, most of the loans from other companies have strict terms or high interest rates.