Japan hikes lending rate for Bangladesh

Japan has raised the rate of interest for its latest aid package worth nearly US$1.64 billion for Bangladesh, officials said.

Japan official donor agency recently confirmed the 38th loan package for Bangladesh's six development projects with a raised interest rate of 0.7 per cent. Japan has been the largest bilateral donor for Bangladesh since independence.

Earlier, the Japan International Cooperation Agency (JICA) used to charge 0.01 per cent rate for its loan to Bangladesh.

Government officials said Monday they signed Yen 178.223 billion ($1.64 billion) 38th ODA package in June 29 with JICA for utilising the fund in six development projects in transport infrastructure, power and water-sector improvement.

"For about last one decade, the Japanese development-cooperation agency, JICA, used to offer us the softest loan compared to any other donors working in Bangladesh. It charged only 0.01 per cent rate for its loan earlier. But from the latest 38th ODA package, the donor has boosted the interest rate," said a senior Economic Relations Division (ERD) official.

Since Bangladesh's economic power is improving, the donor could raise the interest rate for its lending to Bangladesh, he added, requesting not be quoted by name.

Meanwhile, the repayment period of the JICA loan has not been changed. The maturity of the loan is 30 years with a 10-year grace period.

"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 a successful negotiation, Japan reduced the rate at 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 said.

Japan is Bangladesh's largest bilateral donor which has provided nearly US$12 billion dollars in assistance since the financial year (FY) 1971-72.

In the 38th ODA package, JICA has offered $700 million (Yen 76.825 billion) for Hazrat Shahjalal International Airport expansion project, $480 million (Yen 52.73 billion) for 2nd Kanchpur, Meghna and Gumti bridges, $50 million (Yen 5.593 billion) for Dhaka Mass Rapid Transit development project (Line 1), $100 million (Yen 10.745 billion) for Matarbari ultra-super critical coal-fired power plant, $190 million (Yen 20.477 billion) for Dhaka underground substation construction project, and $110 million (Yen 11.853 billion) loan for small-scale water resources' development project.

Another senior ERD official said although Japan has raised the interest rate in lending to Bangladesh, starting with the latest aid package, it is still lower than any other donors offering funds to Bangladesh.

He said the country's largest multilateral donor, the World Bank, provides loan at 0.75 per cent rate, and the second-largest donor, the Asian Development Bank (ADB), at nearly 2.0 to 3.0 per cent.

Currently, Japan is providing nearly US$3.60 billion for Bangladesh's largest power unit, Matarbari 1200MW coal-fired power plant, along with its township and a port facility development project, and nearly $2.0 billion for the country's first metro rail (MRT-6).

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