Written by The Banking Post
Japanese financing for Bangladesh is set to become more expensive, with Japan International Cooperation Agency proposing to raise its lending rate to 3.05% from the current 2.35%, officials in Dhaka said.
The new rate, expected to take effect from April, will apply to upcoming loans for at least six months. It marks a sharp increase from levels below 1% just a few years ago, reflecting changing global economic conditions.
Officials at the Economic Relations Division (ERD) said the higher rate will apply to infrastructure loans, while consultancy credit rates may also rise to around 1% from about 0.85%.
“Japan has proposed the new rate of 3.05% for the next loans,” said an official, adding that Bangladesh is trying to keep rates below 3%.
The increase comes as borrowing costs rise globally following the pandemic and geopolitical tensions, including the Russia-Ukraine war. Analysts say Bangladesh’s transition from a low-income to a lower-middle-income country has also reduced access to ultra-concessional financing.
The impact is significant, as Japan has been Bangladesh’s largest bilateral development partner for over a decade. Since independence, it has provided more than $33 billion in development assistance.
Despite the higher rates, loan terms remain relatively long, with a 30-year repayment period and a 10-year grace period. A small front-end fee of 0.02% will also continue to apply.
However, officials signalled caution over taking on costlier loans. “We are not willing to borrow such costly loans for projects with lower economic returns,” one official said.
The proposed rate hike contrasts with earlier concessional terms—such as 0.1% interest before 2015 and even 0.01% for some projects a decade ago.
Bangladesh is also in talks with Japan for fresh financing, including possible budget support of around $500 million, as the government looks to ease pressure on its economy.
Officials said negotiations are ongoing, with Dhaka aiming to secure favourable terms despite the upward trend in global borrowing costs.
