Dhaka looks to Beijing for fresh loans

Talks on Chinese loan proposals will be at the fore during Prime Minister Sheikh Hasina's upcoming visit to Beijing.

During her visit, Bangladesh may seek around $5 billion in budget support in addition to loans for a number of large projects, said a finance ministry official on condition of anonymity.

While visiting Bangladesh in October 2016, Chinese President Xi Jinping promised about $20 billion -- the largest amount committed by a bilateral partner of Bangladesh -- over the following four years to implement 27 projects.

Bangladesh is again expecting Chinese financing at a time when it is facing pressure to maintain adequate foreign currency reserves.

Hasina's is likely to be in China on July 8-11.

Seeking anonymity, a top official of the Economic Relations Division (ERD) said they have received proposals for large projects from different ministries which suggest taking loans.

The government has been in talks with China about the projects. However, nothing has been finalised yet, the official said.

One of the projects under consideration for Chinese funding is the construction of a broad-gauge rail line from Bhanga to Kuakata via Barishal and Payra Port. It is estimated to cost about $5 billion.

Another project under consideration is the MRT Line-2, from Gabtoli to Narayanganj via Gulistan with a branch line from Gulistan to Sadarghat.

The underground and elevated metro rail is estimated to cost around $5 billion.

Besides, Bangladesh has already sought more than 36 billion yuan, equivalent to $5 billion, as soft loans from China for trade facility.

At present, Bangladesh has about $22 billion trade deficit with China. Once received, the $5 billion policy loan will help the country ease the ongoing pressure on foreign currency reserves.

The ERD official said they were in talks with China regarding the policy loan and that a deal could be signed during Hasina's visit.

Although China had promised to lend about $20 billion in 2016, as of January this year, the two sides managed to sign agreements on only nine projects, involving $8.08 billion, figures from the ERD show.

Of the $8.08 billion, Bangladesh could utilise only $4.91 billion, less than a quarter of the money promised by China.

Red-tape on both sides is largely to blame for the slow loan disbursements, said officials and experts.

The ERD official said this time, loan agreements are expected to be signed under a model different from the one used after 2016.

After China promised the $20 billion, agreements were signed on a project-by-project basis.

This time, officials are expecting that the loan agreements would be signed during Hasina's visit.

Speaking to The Daily Star, Zahid Hussain, a former lead economist at the World Bank's Dhaka office, said what the Chinese president had announced was a promise.

He thinks that red-tape on both sides has been responsible for the slow progress and low fund disbursements.

Kazi Shofiqul Azam, a former secretary to the ERD, said there were bottlenecks on both sides, causing delays in loan-deal finalisation and implementation.

"The countries need to follow a number of formalities, and they are time-consuming sometimes. This has been the main reason behind the delays a project face … ."

STATUS OF 27 PROJECTS

Twenty-seven projects were supposed to be funded with the $20 billion initial commitment. Of those, two projects have been struck off the list.

Two projects – the digital connectivity project of Bangladesh Telecommunication Company Ltd (BTCL) and the Info Sarker-3 of the Bangladesh Computer Council -- involving $388 million have been implemented.

Seven other projects received $7.7 billion and their implementation is ongoing.

The Karnaphuli Tunnel, built under a $707 million project, has been opened to traffic.

The $550 million Single Point Mooring with a double pipeline project and the $2.67 billion Padma rail link project are nearing completion.

The expansion and strengthening of the power system network ($1.4 billion), the power grid network project ($977 million), the Dhaka-Ashulia elevated expressway project ($1.12 billion), and Rajshahi Wasa surface water treatment plant project ($276.25 million) -- are in various stages of implementation.

The loan applications have been sent for two projects. The loan agreement for the establishment of digital connectivity involving $473.75 million is likely to be signed this year.

Negotiations for commercial contracts to convert the Akhaura-Sylhet rail line to dual-gauge from metre gauge, involving $1.3 billion, and expansion and modernisation of Mongla port, costing $354 million, were underway.

Four projects are being evaluated by the Chinese side: Chinese economic and industrial zone in Chattogram ($221 million); construction of dual-gauge line parallel to the existing metre-gauge line on Joydevpur-Mymensingh-Jamalpur section ($902 million); water supply, sanitation, drainage and solid waste management for small size municipalities ($229 million); and construction of the sewage collection system under Dasherkandi sewage treatment plant catchment of Dhaka city ($198 million).