Japan has raised the interest rate on loans given to Bangladesh -- following in the footsteps of the World Bank -- by 30 basis points to 1 percent effective from next fiscal year thanks to the rise of the country's per capita income.
The existing loans will not be subjected to higher interest rate. For instance, last year Japan extended 38 loan packages to Bangladesh at a flat interest rate of 0.7 percent and the interest rate on them will remain the same.
The two countries yesterday signed 39 loan packages worth $1.83 billion (about Tk 15,326 crore) for six projects, and the new interest rate will be applicable to them.
Until the fiscal year of 2016-17, the rate of interest on Japanese loans was 0.01 percent with a repayment period of 40 years, including 10 years' grace period, said an official of the Economic Relations Division.
Then Bangladesh became a lower middle-income country and in fiscal 2017-18 the interest rate crept up to 0.7 percent, he added.
“The continued rise in per capita income in recent times was taken into consideration and the interest rate was raised,” said Kazi Shofiqul Azam, ERD secretary.
However, the terms and conditions set by Japan are not rigid, so the loans can still be considered concessional, he added.
Meanwhile, the cost of funds from the WB is likely to almost double next fiscal year.
Bangladesh is set to graduate from its current “IDA-only” status to the “gap” status since its gross national income per capita crossed the $1,165-mark last fiscal year. The country is on course to emulating the feat this year.
To continue to get loans at concessionary terms from the International Development Association (IDA), the arm of the World Bank Group that hands out loans and grants to the world's poorest developing countries, Bangladesh's GNI per capita has to be less than $1,165.
In 2015, Bangladesh's per capita income was $1,190, but the cut-off for IDA-only loan in the year was more than $1,200. So, the country was still eligible for loans at concessionary interest rate.
If the country manages to stay above the cut-off of $1,165 for two consecutive years, credits will become expensive: the rate of interest on WB loans will jump from 1.25 percent to 2.62 percent.
Bangladesh managed to do it in fiscal 2016-17 and is set to do so again this year, meaning the interest rate will most definitely increase. The service charge on IDA loans is 0.75 percent.
In addition, there is a 0.25 percent front-end fee and 0.25 percent commitment charge. The repayment period is 38 years, including a six-year grace period. In case of the new rate of 2.62 percent, the repayment period will be 30 years, including a grace period of five years.
Six projects signed
The projects that got loans yesterday are: Matarbari Port Development (Tk 203 crore), Jamuna Railway Bridge construction (Tk 2,864 crore), Dhaka Mass Rapid Transit Development (Tk 6,625 crore), Matarbari ultra-super critical coal-fired power plant (Tk 5,148 crore), and health services strengthening project (Tk 501 crore).
The Matarbari Port Development project involves construction of a multipurpose deep-sea port in the Matarbari area of Cox's Bazar with a view to accelerating the flow of goods domestically and with neighbouring countries.
The Jamuna Railway Bridge construction project entails constructing a new dedicated railway bridge parallel to the existing Jamuna multipurpose bridge. The move will contribute to efficiency in the transportation network within the country and with neighbouring countries.
The Dhaka Mass Rapid Transit Development project will connect the east and west portions of Dhaka and strengthen the public transportation network, thereby contributing to economic development and an improved urban environment through alleviated traffic congestion.
The Matarbari ultra-super critical coal-fired power plant will help in meeting the rapidly rising demand for power while mitigating greenhouse gas emissions.
The health services strengthening project will strengthen non-communicable disease control and the access of the urban poor in Dhaka to health services through improvements in primary- and secondary-level healthcare facilities in the country.
The rate of interest on the loans for the infrastructure development is 1 percent and for the health service 0.9 percent. The repayment period is 30 years, including a 10-year grace period.
Azam of the ERD, Hiroyasu Izumi, Japan's ambassador to Bangladesh, and Takatoshi Nishikata, chief representative of the Japan International Cooperation Agency Bangladesh office, signed the loan agreements on behalf of their respective sides.