Chief Adviser Muhammad Yunus’s leave Dhaka for Tokyo, scheduled for May 28-30, is expected to see Bangladesh formalize agreements with Japan, amounting to a total of $1.074 billion. These significant financial accords will be a key outcome of the visit.
Agreements:
- Loan of $656.16 million has been secured to fund the Joydebpur-Ishwardi rail project.
- Under its development policy loan, Japan offered $418 million for budget support.
- Grant agreement for $5.44 million could also be signed.
- Rail project initially agreed with China, but withdrew over cost
- Japan continues to be the leading country in providing mutual development assistance to Bangladesh.
According to high-ranking officials at the Economic Relations Division (ERD), two loan agreements and one grant agreement are the final stages of preparation before the upcoming visit.
The Joydebpur-Ishwardi rail line expansion project will receive a loan of $656.16 million. Additionally, $418 million has been allocated for budget support.
A grant agreement for $5.44 million is also expected to be signed for the “Improvement of Equipment for Air pollution monitoring project.”
During the chief adviser’s upcoming visit to Japan, Bangladesh is expected to secure about $1.079 billion through the signing of two loan agreements and one grant deal. An anonymous ERD official confirmed that preparations for these agreements are nearing completion.
An official stated that JICA’s draft loan documents have been submitted to the law ministry for legal review. Upon vetting, the chief adviser’s consent will be sought via a forwarded summary.
The Executive committee of the National Economic Council greenlit the “Construction Dual gauge double line between Joydebpur-Ishwardi sections” project in 2019. The plan was to executive this project through a government-to-government (G2G) agreement with China.
Initially, the Planning Commission gave its approval for the project at a cost of Tk 14,250 crore, with China slated to contribute Tk 8,757 crore, Bangladesh Railway later entered into a Tk 10,302 crore contract with China Railway Engineering Construction Company.
In 2021, an inter-ministerial committee, directed by the prime minister at the time, determined that estimated costs included an excess of around Tk217 crore.
After the Chinese contractor rejected the modified budget, the government searched for different funding options. They subsequently reached out to Japan, and JICA committed to supplying the money.
Initially, Japan is set to contribute $656.16 million, according to Project Director Md Golam Mostafa. He also indicated that “additional foreign loans might be necessary as the project advances.”
Md. Golam Mostafa, the project director, stated that “Japan’s initial contribution will be $656.16 million, with the possibility of needing more foreign loans as the project progresses.” He anticipates that a “Japanese consultancy firm will be appointed within a year to create the detailed design, which will be crucial for calculating the total financial needs.”
Mostafa added that “whether Japan provides more funds will depend on this design and future government negotiations. The project is slated for completion by Bangladesh Railway by 2030.”
Japan’s budget support loan aims to help the country address its current economic challenges.
Negotiations for a $418 million loan from Japan, intended for economic reform and strengthening climate change resilience under its Development Policy Loan program, were reportedly finalized last week, according to sources at the ERD.
The International Monetary Fund (IMF) confirmed it would release the fourth and fifth portions of its $4.7 billion loan in June, leading to the resumption of these talks.
Budget support from development partners like the World Bank and Asian Development Bank is often contingent on IMF clearance. Despite not being mandated for bilateral lenders, Japan voluntarily aligns with this approach.
Japan has committed $1.036 billion in financial assistance to Bangladesh during the current fiscal year. This aid package comprises $830.88 million in loans and $205.49 million in grants.
Japan was Bangladesh’s largest bilateral lender as of June 30 last year, with outstanding loans totaling $11.25 billion. This amount also made Japan the third-largest overall development partner for Bangladesh in terms of outstanding loans.
