JICA proposes to raise interest rate to 2.26pc for loans to Bangladesh

The Japan International Cooperation Agency (JICA) has proposed to raise the interest rate to 2.26 per cent from 1.6 per cent, for loans to be provided to Bangladesh.

The Economic Relations Division of Bangladesh has been trying to make JICA keep the interest rate as low as possible, at least below 2 per cent, since Japan placed the proposal in July, reports bdnews24.com.

The new rate may become effective by October as Bangladesh is expecting to sign the 44th loan package deal with JICA in November, said AKM Shahabuddin, an additional secretary at the ERD.

An ERD official said Japan assured Bangladesh of funding three ongoing projects and providing $310 million as budget support under that package.

The projects are Matarbari Ultra Super Critical Coal Fired Power Plant, Chattogram Sewerage System Development, and Extension of Shahjalal International Airport.

As a least developed country with low income, Bangladesh enjoyed Japanese loans with only 0.1 percent interest until 2015.

After the country progressed to the lower-middle income level, Japan gradually increased the rate. On some occasions, it lowered the rate as well.

Additional Secretary Shahabuddin said Japan lowers or raises interest rates after discussions with the borrowers. It readjusts the rate two times a year.

Considering the global economic situation over the Russia-Ukraine war in the post-COVID era, the rate for Bangladesh is likely to go up, he said.

The crisis is affecting the interest rates of loans from foreign countries and donor agencies, said Shahabuddin.

Bangladesh currently is repaying loans from the World Bank at 0.75-2.2 per cent interest, ADB 1-5 per cent and IDB 2-4 per cent.

Japan is the single largest bilateral development partner of Bangladesh.

Since independence, Japan has provided Bangladesh with more than $30 billion in loans.