$1.07b loan deals likely during CA Yunus' upcoming Japan visit

Bangladesh is expected to sign two loan agreements worth a total of $1.074 billion with Japan during the upcoming three days visit of Chief Adviser Muhammad Yunus to Tokyo starting from 28 May.

Two loan agreements and one grant deal are being finalised ahead of the visit, according to senior officials from the Economic Relations Division (ERD).

Among these is a $656.16 million loan for the Joydebpur-Ishwardi rail line expansion project, equivalent to ¥92.08 billion. Another $418 million (¥63 billion) will be provided as budget support.

In addition to the loan deals, a grant agreement worth $5.44 million (¥835 million) for the "Improvement of Equipment for Air Pollution Monitoring Project" may also be signed.

An ERD official, said preparations are nearly complete to sign the two loan agreements and one grant deal during the chief adviser's upcoming Japan visit.

"Under these agreements, Bangladesh is expected to receive a total of $1.079 billion from Japan," he said.

The official said draft loan documents prepared by the Japan International Cooperation Agency (Jica) have already been sent to the law ministry for vetting. Once approved, the summary will be forwarded to the chief adviser for his consent.

Shift from China to Japan

The "Construction of Dual Gauge Double Line between Joydebpur–Ishwardi Section" project was initially approved by the Executive Committee of the National Economic Council in 2019 with plans to implement it under a government-to-government (G2G) arrangement with China.

According to Planning Commission data, the project was initially approved at Tk14,250 crore, with China expected to provide Tk8,757 crore. The Railway even signed a Tk10,302 crore deal with China Railway Engineering Construction Company.

However, the Chinese proposal faced criticism over excessive costs.

Following instructions from the then prime minister, an inter-ministerial committee reviewed the estimated expenses in 2021 and found an excess cost of around Tk217 crore.

When the Chinese contractor objected to the revised budget, the government sought alternative funding. Subsequently, Japan was approached through Jica, which agreed to provide financing.

Md Golam Mostafa, project director, told The Business Standard that Japan will initially provide $656.16 million, but further foreign loans may be required as the project progresses.

A Japanese consultancy firm is expected to be appointed within a year to prepare the detailed design, which will help determine the total financing needs, he said.

"Whether Japan will provide additional funds depends on this design and the government's future negotiations. Bangladesh Railway aims to complete the project by 2030," added Mostafa.

Budget support

The budget support loan from Japan is also part of efforts to tackle the country's ongoing economic crisis.

ERD sources said that negotiations for the $418 million loan under Japan's Development Policy Loan for Economic Reform and Strengthening Climate Change Resilience concluded last week.

These discussions resumed after the International Monetary Fund (IMF) offered assurance of releasing the fourth and fifth tranches of its $4.7 billion loan in June.

Development partners like the World Bank and Asian Development Bank typically wait for IMF's clearance before releasing budget support. Though bilateral lenders are not obligated to follow this rule, Japan does so voluntarily.

Japanese loans

Japan has already signed loan and grant agreements worth $1.036 billion with Bangladesh in the current fiscal year. These include $830.88 million in loans and $205.49 million in grants.

As of 30 June last year, Japan's outstanding loans to Bangladesh stood at $11.25 billion, the third highest among all development partners and the highest among bilateral donors.