Bangladesh is going to seek more than 36 billion yuan, equivalent to $5 billion, as soft loans from China to reduce pressure on its dollar reserves.

According to highly placed sources in the government, the country will use the money to help businesses import raw materials and also for budget support.

Bangladesh exported goods worth $677 million to China and imported goods worth $22.90 billion in fiscal 2022-23, according to data from the commerce ministry. China is Bangladesh's single largest trading partner.

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Sources in the finance and commerce ministries said the Prime Minister's Office has already given the go-ahead and officials are now discussing the interest rate and repayment periods. They are also discussing how and where the money would be spent.

They said that officials of the Finance Division, commerce ministry, Economic Relations Division, and the National Board of Revenue at a recent meeting gave opinions that the loan should be long-term and the interest rate should not be above 1 percent.

According to the sources, the main purpose of the loan is to reduce pressure on the depleting reserves, which stood at $19.95 billion as of April 30.

In September 2022, Bangladesh Bank allowed settlement of international trade in Chinese yuan to cut excessive dependence on the dollar

The government wants to support the businesspeople in importing raw materials as the Bangladesh Bank's decision to slash the volume of the Export Development Fund (EDF) has put them in a tight spot.

The central bank brought down the EDF volume to around $2 billion from about $7 billion in mid-2022 when reserves came under pressure following a surge in imports.

BB also raised the interest rate on EDF loans to 4.5 percent from 4 percent in April last year.

According to a BB circular on April 9, 2023, an exporter can take loans of $10 million but a member of Bangladesh Garment Manufacturers and Exporters Association can get as much as $20 million.

According to the rules for the EDF loan, the borrower has to repay within 180 days but in some cases 210 days is allowed.

The sources said Bangladesh, during the loan negotiations, will ask for flexible terms so that the money can be used for trade with other countries alongside China.

The interest rate and the repayment term would be finalised at that time, according to a top official at the commerce ministry.

State Minister for Commerce Ahasanul Islam Titu brought up the loan issue during bilateral talks with his Chinese counterpart on the sidelines of the 13th Ministerial Conference of World Trade Organisation in Abu Dhabi between February 26 and March 2.

After the conference, the state minister wrote to the Chinese minister thanking him and mentioned their discussion on the loan. In response, the Chinese minister said his government in principle agreed to it and asked Ahasanul to proceed.

The commerce ministry then asked the Finance Division and the Economic Relations Division to get the PMO's nod.