Dhaka requests Tokyo to review its new lending rate

Bangladesh has formally requested Japan to review its newly imposed higher lending rate on development assistance loans, expressing concern that the increased borrowing cost could put additional pressure on the economy, officials said on Saturday.
"We are awaiting a positive response from the Japanese government to Bangladesh's request," a senior Ministry of Finance (MoF) official said.
Finance and Planning Minister Amir Khosru Mahmud Chowdhury wrote to his Japanese counterpart nearly a month ago, requesting a review of the new 3.05 per cent interest rate imposed from April 2026, according to MoF officials.
Japan recently raised the interest rate on its loans for development projects and programmes in Bangladesh by 72 basis points to 3.05 per cent.
The loans are provided through the Japan International Cooperation Agency (JICA), which currently extends financing for various development projects in Bangladesh.
Officials noted that the interest rate on Japanese loans was below 1.0 per cent even three years ago.
"The higher rate will significantly increase borrowing costs for Bangladesh and make it more difficult to finance development projects," another MoF official said.
Japan is Bangladesh's largest bilateral development partner, disbursing around $600 million to $700 million annually in loans and grants while committing approximately $1.3 billion a year, according to Economic Relations Division (ERD) data.
Between July 2025 and April 2026, JICA disbursed $422.37 million in assistance to Bangladesh. However, no new funding commitments were made during the period, official data showed.
An ERD official said Japanese financing is provided as Official Development Assistance (ODA) and is therefore expected to remain concessional.
"If the terms become stricter and the grant element falls below 35 per cent, the loans will no longer qualify as concessional financing. That would make them more difficult for developing economies like Bangladesh to absorb," he said.
Japan has also increased the interest rate on consultancy-related credit to 1.0 per cent from 0.85 per cent, ERD officials said.
The revised lending rates will remain effective until September 2026, as JICA reviews its lending terms for Bangladesh every six months.
Another ERD official said Bangladesh had earlier requested JICA to reconsider the higher rate, but the agency informed Dhaka that the decision rested with the Japanese government.
Subsequently, the finance minister wrote to his Japanese counterpart in late May seeking a review of the newly imposed 3.05 per cent rate, he added.
While the maturity period and grace period of Japanese loans will remain unchanged during the current six-month cycle, the higher interest rate will increase overall borrowing costs.
JICA also charges a front-end fee of 0.02 per cent on most loans extended to Bangladesh.
Under existing terms, Bangladesh repays Japanese loans over 30 years, including a 10-year grace period.
As a least-developed country, Bangladesh enjoyed Japanese loans at an interest rate of only 0.1 per cent until 2015.
Historical lending rates have risen steadily in recent years, from around 0.7 per cent in 2022 to 1.6 per cent in 2023, and later to between 2.26 per cent and 2.35 per cent for several infrastructure projects.