Govt urges China to reduce loan interest, extend repayment period

The government has requested China to lower the interest rates on existing Chinese loans to 1 percent and extend the repayment period to 30 years.
To this end, the Economic Relations Division (ERD) of the Ministry of Finance sent a letter to Beijing early this week, ERD Secretary Shahriar Kader Siddiky confirmed to The Daily Star.
Currently, interest rates on Chinese loans range from 2-3 percent with a repayment period of 20 years.
ERD officials said that if they cannot secure interest rate cuts for ongoing Chinese loans, they will attempt to get it along with extended repayments for new Chinese borrowing.
In his address to the nation on Wednesday, Chief Adviser of the interim government Professor Muhammad Yunus said Bangladesh is seeking lower rates and extended repayments for foreign loans to alleviate pressure on its fast-depleting foreign exchange reserves.
Professor Yunus said Bangladesh has requested China to reduce the interest rates on its loans and to extend the repayment tenure.
Chinese President Xi Jinping during his visit to Bangladesh in October 2016 pledged $20 billion — the largest amount committed by a bilateral partner of Bangladesh — over the following four years to implement 27 projects.
Following the loan promise, agreements were signed on a project-by-project basis. As of this January, Dhaka and Beijing had managed to sign agreements on only nine projects, totalling $8.08 billion, according to ERD figures.
Of the $8.08 billion, Bangladesh has only been able to utilise $4.91 billion, less than a quarter of the money promised by China.
Now, the interim government says the remaining 18 projects would be reviewed to determine their economic priority amid the current context.
LOAN RELIEF TALKS WITH RUSSIA ON TOO

Chief Adviser Yunus also said Bangladesh had requested Russia to lower its interest rates and allow extended repayments as well.
Yunus said that the government was negotiating with the Russian Federation regarding the advance payment for the ongoing Rooppur Nuclear Power Plant and outstanding debts.
The $11.38 billion nuclear plant loan from Moscow covers 90 percent of the project cost. Besides, Bangladesh took a $500 million Russian loan for the primary work of the project.
Following the US financial sanctions on Moscow after Russia’s invasion of Ukraine in 2022, Bangladesh has been facing challenges in repaying the $500 million loan and interest payments.
As a result, the outstanding loans to Russia have reached over $600 million to date.
Upon the recommendation of the International Monetary Fund (IMF), the government is setting aside the outstanding amount in a separate account at the Bangladesh Bank. Whenever funds are added to the account, Russia receives a notification.
The nuclear plant agreement was signed between Bangladesh and Russia in 2016, with disbursements beginning in 2017.
According to the agreement, the government will have to repay the loan in 20 years, from March 2027 to 2047, with a 10-year grace period ending in 2027.
The Russian loan carries an interest rate of the London Interbank Offered Rate (LIBOR) plus 1.75 percent. But the interest rate will not exceed 4 percent.
A senior ERD official said Russia has sent multiple letters to Bangladesh requesting repayment in Chinese Yuan.
A meeting was held last week between Bangladesh and Russia to discuss the overdue amount, penalty charges and other related matters.
Another finance ministry official said that the Bangladesh side requested Russia to provide a solution for repaying the funds that does not violate US sanctions.
The local payment of the project to Russian contractors is being paid timely.
Due to the high SOFR rate, the interest rate on the Russian loan is currently approaching its maximum level. The ERD will request Russia to reduce the interest rate and penalty charges.