In a significant move towards hard-term loans amid transition from LDC status, Bangladesh has approved in principle more than $1 billion in foreign loans with tough conditions to fund some major projects.
The decision was made at a high-level meeting of the Economic Relations Division’s (ERD) Standing Committee on Non-Concessional Loans on Wednesday held with Finance Adviser Dr Salehuddin in the chair, official sources said.
These loans are non-concessional, meaning they come with higher interest rates and shorter repayment periods. Officials say this shift is happening because traditional lenders like the World Bank and Asian Development Bank have reduced their concessional lending to mid-income countries like Bangladesh.
In view of rising trends in costly overseas borrowing, the meeting focused on how Bangladesh could negotiate better terms — such as lower interest rates and longer repayment periods — on non-concessional loans, according to ERD officials.
One of the key projects cleared is the construction of five climate-resilient bridges in the Mymensingh division. The total cost of the project is about Tk 3,745 crore. The Islamic Development Bank will provide around Tk 2,850 crore or nearly $233 million, mostly under hard loan terms.
These bridges will be built in remote areas of Netrokona and Sunamganj, and are expected to improve road connectivity and open up access to valuable white clay deposits in Bijoypur.
Two large water supply projects under Dhaka WASA also got approval. The Sayedabad Water Treatment Plant (Phase 3) will cost over Tk 16,000 crore, with the European Investment Bank providing Tk 11,448 crore in non-concessional loans.
Another $90 million loan from the EIB will support the Environmentally Sustainable Water Supply Project. Experts warn these high-interest loans could lead to higher water prices for the public in the future.
In the railway sector, the ADB will provide about $500 million to convert the Chattogram-Dohazari rail line from meter gauge to dual gauge. The entire loan is under non-concessional terms, which could strain the financial capacity of Bangladesh Railway in the long run.
ADB is also funding a second-phase water supply project in Khulna with $150 million. One-third of this amount is non-concessional. Additionally, ADB is lending $91 million to improve the power distribution system in the northern NESCO area.
Economists are expressing concern over this growing dependence on costly foreign loans. Bangladesh has traditionally preferred concessional loans due to their favorable terms. But as those sources shrink, the government is turning to more expensive options to keep development projects going.
An ERD official acknowledged the risks but said the government has little choice. “We are trying to negotiate better terms, but it’s getting harder to find low-interest loans,” he said.
Experts warn that this trend could lead to rising project costs and heavier interest payments, increasing pressure on the national budget in the coming years.