China is slow to deliver on its loan pledges for Bangladesh, with only two projects worth $400 million signed in the current fiscal year, Economic Relations Division (ERD) officials said. ).
In the last fiscal year, only one project was signed for a $1.12 billion Chinese loan.
With these, loan agreements amounted to $7.8 billion for 27 projects since the Asian powerhouse pledged $20 billion in loans under the Production Capacity Building and Cooperation Program signed in 2016 during Chinese President Xi Jinping’s visit to Dhaka.
ERD officials, who find Chinese loan offers flexible, said deals for the $20 billion loan must be completed within five years of the offer. But Chinese authorities appear to be slowing down, which has worried officials about the prospect of securing the promised low-cost loan before 2026 – the year Bangladesh is expected to graduate from LDCs and face a higher cost of borrowing.
Officials hoped, however, that an additional $4 billion could be approved for 10 projects over the next four years before that deadline.
For this fiscal year, ERD data shows the country can secure a $400 million loan for just two projects: the Rajshahi Wasa surface water treatment plant and the establishment of six separate television stations. whole of Bangladesh Television.
These two projects have loan proposals of $276.25 million and $125.12 million respectively.
Early last fiscal year, a $1.12 billion loan agreement was signed with China for a single project. The loan agreement was signed four years after the project was approved at a meeting of the Executive Committee of the National Economic Council (Ecnec).
Meanwhile, several major projects such as China’s Chattogram Economic and Industrial Zones and the Teesta River Integral Management and Restoration Project have been awaiting loans for some time.
With graduation from the list of least developed countries (LDCs), Bangladesh will no longer be eligible for special and differential treatment specific to LDCs, including these flexible loans.
Time is running out, but the government is optimistic about securing Chinese funding for several projects over the next four years.
Some of the agreements signed so far include the Padma Railway Bridge Link Project, the expansion and strengthening of the power distribution system in the DPDC areas, the construction of a tunnel under the Karnaphuli River and the installation of a single mooring point.
In addition to the last two projects, four more are in the pipeline by 2026.
DRE officials are concerned, however, that after Bangladesh exits in 2026, access to these flexible loans will decline. If low interest loans can be obtained now, the better for the country.
The Business Standard contacted ERD secretary Sharifa Khan, who declined to comment on the matter.
But an ERD official who spoke on condition of anonymity said China’s loan approval process was taking a long time as each application was reviewed at the highest level in that country. As a result, loan approval was delayed.
Meanwhile, China had agreed to provide loans for major projects such as the Padma rail link and the Dhaka Ashulia elevated highway.
Similarly, the construction of television stations in six departmental towns and the Akhaura-Sylhet railway project were also approved by the government about three years ago, but the final loan decision has not yet been confirmed. .
The loan proposal for the Rajshahi Wasa surface water treatment plant project was sent to the Chinese authorities on April 13, 2021, ERD officials said.
It is currently under review and the ERD expects to sign the engagement with China by December this year.
The proposal for the six TV channels was sent in December last year and is expected to be signed after review by March next year.
Ahsan H Mansur, executive director of the Bangladesh Policy Research Institute, said project costs in China are high, but the country’s loan terms and conditions aren’t that bad.
“The more flexible a loan is, the better it is for us. We won’t be able to get flexible loan opportunities for a long time, so we have to be careful in selecting projects,” Ahsan Mansur said, warning that projects that could become burdens in the future should not be taken up.
“We have to take projects that will be economically profitable. We are not yet in the situation of China’s debt trap. If we are careful in choosing projects, we will not enter such a trap,” he said. he declared.
According to ERD data, the interest rate for Chinese loans is 2% and with a commitment charge of 0.25% and a management fee of 0.25%. The loan must be repaid in 15 to 20 years with a grace period of 5 years.
Important projects awaiting loans
Work on China Economic and Industrial Zones in Chattogram on 783 acres of land in Anwara has been stalled for five years.
Last August, a memorandum of understanding was signed with the Bangladesh Economic Zone Authority (BEZA) and the Chinese company China Road and Bridge Corporation to establish the zone.
But according to ERD sources, the loan agreement for the project is not expected to take place before 2025.
A preliminary application was sent to the Chinese Embassy on September 12, 2018 and additional documents on January 22, 2020. It appears that no response has yet been received from China.
On the other hand, the Teesta River Comprehensive Management and Restoration Projects Project is expected to receive $725 million in Chinese loans. The proposal for this project is still under review by the Chinese government. ERD is working on a loan agreement for the project by 2025.
In September 2016, the Water Development Board signed a memorandum of understanding with Power Construction Corporation of China to conduct a technical assessment, make detailed designs and commence construction of the project.
The MoU was also supposed to help Bangladesh secure a loan from China.
The government plans to reclaim 170.87 square kilometers of land on the Teesta by dredging its main channel. At the same time, it plans to build dams using a needs-based approach.
The land that is expected to be reclaimed is worth $1,570.84 million, while the property value that the newly constructed dams will save is estimated at $1,346.02 million.
The total benefit from the project will be $2,916.89 million.
In April 2019, Ecnec obtained approval for the conversion of the MG railway to the DG railway in the Akhaura section in Sylhet, but the final loan commitment from China could not be realized.
China is expected to lend $1.27 billion for the project. ERD officials said the loan deal could be in place in 2024.
Notable projects in the pipeline to be implemented with Chinese funding are – expansion and modernization of Mongla port facilities, establishment of digital connectivity, provisioning of six vessels, construction of DG lane parallel to existing MG line at Joydebpur – Mymensingh – Jamalpur Section, Water Supply, Sewerage, Drainage and Solid Waste Management for Small Size Municipalities.