The loan under the government-to-government negotiation from China and India is increasingly influenced by geopolitics, challenging Bangladesh to successfully implement its infrastructure projects.
鈥楾his dependency on geopolitical factors introduces uncertainty and risks into Bangladesh鈥檚 critical infrastructure projects, posing significant challenges for future planning and sustainable development,鈥� according to the taskforce report on 鈥楻e-strategising the economy and mobilising resources for equitable and sustainable development鈥�.
The 12-member taskforce led by KAS Murshid, former director general of the Bangladesh Institute of Development Studies, in the chapter titled 鈥業nfrastructure and connectivity: a pathway to economic prosperity鈥� has recommended introducing infrastructure bonds following the practices in India, China, Malaysia, Indonesia and Vietnam to overcome the challenge.
The task force, formed in September by the interim government, submitted its report to the chief adviser, Professor Muhammad Yunus, on January 30.
The taskforce explains that the infrastructural project funding in Bangladesh often relied on soft loans, public-private partnerships, government-to-government negotiations, and lines of credit.
These funding mechanisms, however, frequently come with stringent and unfavourable conditions, coupled with sluggish fund disbursement processes delaying project execution, according to the report.
While the G-to-G funding is perceived to offer relatively lower interest rates and favourable grace periods, it is heavily criticised for resulting in exorbitantly high construction costs, primarily due to the reliance on direct procurement methods or non-competitive bidding practices, adds the report.聽
The report highlights that India鈥檚 lines of credit were presented to support Bangladesh鈥檚 development across various sectors, but these loans came with stringent conditions raising concerns about sovereignty and long-term economic sustainability.
A key stipulation of these lines of credit makes it binding for Bangladesh to source聽 75 per cent of project content, including goods and services, to source from India, limiting Bangladesh鈥檚 flexibility in procurement and often resulting in inflated costs and compromised quality, noted the report.
The report said that these loans were also frequently criticised for their slow fund disbursement processes, causing significant delays in project implementation.
As of September 2022, only about $1.5 billion of the $7.3 billion committed under the LoCs was released.
The government鈥檚 overall outstanding foreign debt stood at $82.82 billion at the end of FY2023鈥�24 from $20.33 billion in FY2009鈥�10 with China becoming a major bilateral lender.
The Economic Relations Division officials in August 2024 said that loans worth $4 billion were disbursed so far by China against a commitment of $7 billion.
A Finance Division debt bulletin issued in last August showed that the government outstanding debt to China crossed $5.5 billion, the third highest after the bilateral lenders Japan and Russia.
The Chinese loan has been used in implementing projects, some of which have already failed to yield expected returns.
The taskforce report has identified the Karnaphuli Tunnel and Padma Bridge Rail Link among such projects failing to bring expected returns, while recommending debt restructuring in its chapter 鈥楻e-gaining macro-economic stability鈥�.
Bangladesh may need to explore options for refinancing or restructuring its external debt to reduce the burden of repayments, the report observes.
Urged by Dhaka, China has recently agreed to extend the loan repayment period for Bangladesh from 20 years to 30 years for previous loans.
Beijing gave the consent when foreign affairs adviser Touhid Hossain paid an official visit there during January 20鈥�24.
It also assured Dhaka of considering its another request for lowering the interest rate.聽
To ensure availability of fund, the taskforce also recommends introduction of infrastructure bonds to raise long-term capital for such projects, including roads, bridges, power plants and airports.
Referring to the India Infrastructure Finance Company Limited, the Chinese Special Purpose Bonds, the Malaysian Sukuk Bonds, the Indonesian Infrastructure Sukuk, and the Vietnamese Government-backed infrastructure bonds, the report said that adopting similar models with robust regulatory frameworks and clear investment incentives could provide the government with an effective alternative financial tool to drive sustainable infrastructure development for Bangladesh.
