China has emerged as a major source of funding for Bangladesh's infrastructure projects, becoming the country's fourth-largest lender. Following President Xi Jinping's 2016 visit, during which he pledged nearly $20 billion in loan assistance, Chinese loans have surged, exceeding $1 billion annually in recent years.
While these loans offer competitive interest rates between 2 per cent and 2.15 per cent, experts express concerns over their shorter repayment periods of 10-15 years compared to the 30-40 years offered by traditional lenders like the World Bank and Asian Development Bank (ADB). This may strain Bangladesh's finances in the long run, they say.
Economists also highlight the limited contractor selection processes associated with these loans, raising questions about project transparency and cost-effectiveness. There are fears that hefty loan repayments could deplete Bangladesh's foreign reserves, leading to a heavy debt burden.
In the past four fiscal years, China has disbursed nearly $3 billion, accounting for around 40 per cent of their total lending to Bangladesh as of December 2023. Despite this influx, Japan, the World Bank, and the ADB still precede China in terms of loan disbursements.
Currently, China accounts for nearly 10 per cent of Bangladesh's total annual borrowings, with at least $1 billion disbursed annually over the last two years.
Dr Ahsan H Mansur, executive director of the Policy Research Institute (PRI), warned of the risks associated with excessive reliance on Chinese loans. He pointed to Sri Lanka's experience, where heavy borrowing from China for infrastructure projects led to severe repayment pressures.
Dr. Mansur highlighted that Chinese loans are repaid in dollars, which, given the underperformance of local currencies against the dollar, adds pressure on Bangladesh's economy. He noted that loans from the World Bank, ADB, or Japan come with extended repayment periods, making Chinese loans less favorable in this regard.
Despite these concerns, Dr. Mansur acknowledged a positive aspect of Chinese loans: they require alignment with trade strategies rather than political negotiations.
According to the Economic Relations Division (ERD), China disbursed $600 million in loans in the fiscal year 2019-20, which dropped to $240 million the following year. However, disbursements rebounded to over $1 billion in the fiscal year 2021-22, reaching $1.12 billion the following year.
China has provided $2.97 billion in loans to Bangladesh over the last four fiscal years, bringing its total loan disbursement since 1975 to $7.5 billion.
In the last fiscal year, the World Bank was the largest lender to Bangladesh with $1.93 billion, followed by Japan with $1.9 billion, and the ADB with $1.56 billion. China secured the fourth spot with $1.12 billion in loans. Overall, Bangladesh received $9.26 billion from various lenders in the last fiscal year.
A senior ERD official noted that obtaining loans as affordable as those from China is challenging from other sources. Bangladesh requires around $10 billion in overseas loans annually, while prominent global lenders like the World Bank, ADB, and Japan can provide approximately $5.5 billion.
