The transport sector remains the top priority sector of the government. One-third of the expected $30.89 billion foreign loan for the current and next two fiscal years is earmarked for the sector for projects approved by development partners.
Of the 115 projects listed by the Economic Relations Department (ERD), 30 are road and rail connectivity projects. A loan of $10.7 billion has been proposed for these. Next is the energy sector. 4.77 billion dollars is expected from foreign financing in 7 projects of this sector.
Major projects include Metro-5 in Dhaka, Kalurghat rail-road bridge in Chittagong, Dhaka-Comilla railway line, railway container depot at Dhirashram in Gazipur and container terminal at Chittagong port.
These loan agreements are expected over the next three fiscal years up to 2025-26 to implement the project within five years of signing the agreement.
Infrastructure for trade and investment is being prioritized in terms of funding. $10.7 billion has been earmarked for road and rail connectivity. Education and healthcare, on the other hand, will receive comparatively less funding. 1.64 billion and 1.19 billion dollars have been proposed in these two sectors respectively.
The trend of under-allocation for education and healthcare in the annual development budget continues despite these anticipated borrowings. These sectors, which are crucial for human capital development, are receiving significantly less funding than the transport sector, which received 26 percent of the current fiscal year’s development budget. Allocation for education and health sector is 7 percent and 5 percent respectively.
However, most of the proposed education schemes focus on skills training. And health sector projects include the expansion of a nutrition program funded by multiple lenders.
A call for prudence in project selection
Dhaka University economics professor Salim Raihan feels Bangladesh continues to prioritize physical infrastructure, but lags behind competitors in social infrastructure such as education and health. “Mega projects are also needed for health and education, otherwise we will miss out on comprehensive development envisaged in SDGs, five-year plans, etc.,” he said.
Stating that these two social sectors cannot utilize the amount of allocation they get, he emphasized on major reforms to increase the efficiency of these sectors.
‘We talk about development, productivity and demographic dividends. But we don’t invest much in health and education,’ said the professor, who also serves as the executive director of the South Asian Network on Economic Modeling (SANEM).
ERD maintains a monthly updated list of projects awaiting loan agreement. According to his data, the Asian Development Bank is expected to provide half of the total loan amounting to about $14.95 billion. The World Bank has already approved $3.73 billion. Another $11.12 billion loan deal is set to be signed with other development partners including the Asian Infrastructure Investment Bank, China, South Korea and the New Development Bank.
ERD’s latest report also mentions the country’s upcoming budget challenges and a $3.61 billion budget proposal to address the economic situation.
Zahid Hossain, former Chief Economist of the World Bank’s Dhaka office, called for caution in project selection to maximize economic benefits and control debt repayment pressure.
He emphasized the importance of selecting projects with clear economic benefits.
‘It is not fair to invest in vanity projects using foreign loans. Sri Lanka’s Hambantota International Port project was also a vanity project. Our Karnaphuli tunnel is also a similar project,’.
The former World Bank economist said that priority should be given to projects that attract foreign investment and provide foreign exchange.
‘Projects should be selected which will increase export productivity. Priority should also be given to projects related to logistics and energy supply which will directly contribute to foreign exchange growth,’ he added.
The share of bilateral loans is increasing
The share of bilateral debt in Bangladesh’s foreign debt portfolio is increasing. Some of these include high-interest loans.
Bilateral debt accounted for 40 percent of Bangladesh’s external debt in the 2022–23 fiscal year, up from 31 percent in the 2019–20 fiscal year. As per ERD data as of June 30, 2023, total borrowing from multilateral sources was $37.25 billion, while borrowing from bilateral sources was $25.15 billion.
Bangladesh’s annual debt service has exceeded $2 billion in the eight months of the current fiscal year to February, which is 43 percent higher than the same period in the previous fiscal year. Additional debt from foreign sources will be added to this amount.
Economist Zahid Hossain expressed concern over Bangladesh’s increasing reliance on market-based foreign loans for infrastructural development.
‘Government operating expenses are increasing, debt repayment is also increasing. Global interest rates are also high. Market-based lending should be used less now under tighter conditions,’ he said.
However, according to the IMF-World Bank Debt Sustainability Analysis, Bangladesh is at low risk of external and overall debt crisis.
Professor Mostafizur Rahman, an economist at the Center for Policy Dialogue, said Bangladesh’s public sector external debt-to-GDP ratio is ‘quite comforting’. However, the increase in foreign debt and debt service liabilities in recent years is a cause for concern.
ADB’s focus on transport, World Bank on local government
The Asian Development Bank’s (ADB) pipeline loan projects include $4.93 billion in major roads, railways, inland depots and container terminals, more than any other sector. The government has secured a $2.6 billion loan from ADB for 12 projects.
One of its key projects is the $5.47 billion Dhaka Metro (Line-5) South Route, which is expected to start next year. It is in the final stages of the approval process, the Planning Commission said. It will be presented to the Executive Committee of the National Economic Council (ECNEC) for final approval after the committee’s meeting this month.
Most of the 17 km underground metro rail line between Gabtali-Dasherkandi will be jointly financed by ADB and South Korea. The first phase of $300 million from ADB is expected to be available in October.
The Manila-based company in the Philippines has pledged $600 million for the first phase of the Dhaka-Chittagong Broad Gauge Rail Line project.
Railway officials said they aim to sign two loan agreements with ADB within the next year.
The loan agreement with ADB for the $250 million inland container depot project at Dhirashram in Gazipur is in the final stage. This railway depot will connect Chittagong and Matarbari ports with the capital Dhaka by rail.
Approval has been received from the World Bank for 11 projects, a large portion ($1.76 billion) of which is to be spent on local government and rural development.
A $3.5 billion loan agreement for a portion of the Chittagong Bay Terminal in port expansion is expected to be signed this year.
Asian partners are coming together
The government is preparing to sign loan agreements for 29 infrastructure development projects with Asian development partners including the Asian Infrastructure Investment Bank, New Development Bank, Japan, China and South Korea.
The transport sector will receive more than $5 billion of which about half has been agreed or is under negotiation.
A loan agreement with China is expected for digital connectivity in Bangabandhu Hi-Tech City at Kaliakore in Gazipur this financial year. On the other hand, preparations for a South Korean loan for a rail-road bridge over the Karnaphuli river at Kalurghat in Chittagong are in the final stage.
Besides, Japan has already signed two billion dollar loan agreement for 3 projects this year.
There is some improvement in the health-education sector as well
ERD officials hope to sign loan agreements with the World Bank, ADB, Asian Infrastructure Investment Bank and South Korea by June next year for several national and urban health and nutrition projects including the 5th Health, Population and Nutrition Sector Programme, health care development projects and BSMMU’s super specialized hospital. .
The education sector is also going to get major funding through loan agreements for several projects that have been stalled as per the ERD’s list.
Among these, ADB will support programs such as the NextGen Secondary Education Programme, Technical Education Modernization and the Fifth Primary Education Development Programme.
The Saudi Fund for Development will support the construction of 10 secondary schools in the Hawar area. A loan deal is expected for him this year.
