Japanese loan is no more a much concessional one as before because its interest rate is being raised every six months, as Tokyo struggles to tame inflation, officials in Dhaka said Monday.
Interest-rate rise not alone, other terms and conditions binding credits from the advanced Asian country have also become harder than the previous ones, they said.
The loan maturity has been reduced by 10 years, and some other fees have been added up to the interest rates on the Japanese credits.
Until 2016, Japan had provided the most concessional loan to Bangladesh as it charged only 0.01 per cent for its official development assistance (ODA), an FE analysis has found.
Interest has swelled 160 times in last seven years and hit 1.6 per cent from only 0.01 per cent seven years back in 2016, according to the findings. In 2016, the lending rate for the loan from Japan International Cooperation Agency (JICA) was a mere 0.01 per cent.
On June 27 last, the latest costlier loan worth $209 million (JPY30 billion) under the 44th ODA was lent to the Bangladesh government with the highest interest rate ever. The interest is 1.60 per cent. And the maturity is 20 years after the grace period of 10 years.
According to the FE analysis, the interest rate had started rising with the 38th ODA from JICA.
For the first time after 2016, the rate of interest on the $1.64 billion 38th ODA package for Bangladesh's six development projects jumped to 0.7 per cent. The loan-maturity period was also cut to 30 years, with a 10-year grace period.
A senior Ministry of Finance (MoF) official said: "For about last one decade, JICA used to offer us the softest loan compared to any other donors working in Bangladesh. It charged only 0.01 per cent for its loan earlier. But from the 38th ODA package, the donor has been increasing the interest rate."
He notes that since Bangladesh's economic power is improving, the donor has been extending its interest rate in lending to Bangladesh.
"A decade ago, the Japanese loan was costlier than the present one as the donor was charging nearly 1.0 per cent or higher interest rates. After successful negotiations, Japan reduced the rate to 0.01 per cent at that time. But it has again boosted the rate from the latest 38th-ODA package, signed in June this year," the ERD official says.
Asked about the revised terms and conditions of JICA loan, a senior Economic Relations Division (ERD) official told the FE that the Japanese agency had informed Bangladesh government that it would revise the terms every sixth months.
The FE analysis has found that the JICA just after one year again increased its rate of interest to 1.0 per cent for construction-related projects under its $1.83 billion worth of 39th-ODA package.
The government will have to repay the loan in 30 years with a 10-year grace period.
Besides, the bilateral donor will charge 0.20 per cent as "front-end fee" for the entire amount of loans.
However, it charges lower rate for consultancy and health sector in lending to Bangladesh, which varies between 0.01 and 0.9 per cent.
The JICA confirmed the 43rd ODA on two occasions within a year. In the first phase in June 2022, the lender charged 0.70 per cent. However, in the 2nd phase for the same package (43rd) in March 2022, the lender enhanced its interest rate again to 1.20 per cent for its $1.27-billion loan.
But in the last 44th-ODA package (1st phase), JIICA again hiked the interest rate to 1.6 per cent for its some $209 million worth of policy-support credit to Bangladesh.
Japan is the largest bilateral development partner of Bangladesh with a total portfolio of some US$20 billion to the date.
Meanwhile, the largest multilateral lender, the World Bank, has also enhanced its lending rate to 1.75 per cent from earlier 0.75 per cent after Bangladesh having graduated to lower-middle-income county (LMIC) in 2015.
The Manila-based Asian Development Bank also enhanced its lending rate. It provides some loans at 2.0-percent fixed rate and more than half of the portfolio at floating rate to Bangladesh.
Centre for Policy Dialogue (CPD) Research Director Dr Khandker Golam Moazzem says as long as the Japanese loan is still concessional compared to other lenders like WB and ADB, it is good news for one side.
"From another side, since JICA is revising its interest rate and other conditions every six months over the last couple of years, it's a bad news for Bangladesh's foreign-debt management," he told the FE.
The economist suggests that ERD should be more cautious in borrowing such loans with increasing rates and it should go for negotiations with Japan to keep the concessional terms instead of enlarging the rate every six months.
kabirhumayan10@gmail.com
