Bangladesh risks falling in debt trap with China?

Bangladesh is scheduled to sign two agreements with China to borrow $2.37 billion for two power projects during Prime Minister Sheikh Hasina’s four-day China visit from July 1, finance ministry officials have said. Hasina recently gave her consent to taking $1.02 billion of the $1.4 billion loan for the Dhaka Power Distribution Company (DPDC) project at 3 percent interest. China will provide the rest $381.16 million at 2 percent interest.

Officials at the Economic Relations Division (ERD) told The Daily Star that in the past Bangladesh had never taken any non-concessional loans at an interest rates of above 2.5 percent from bilateral or multilateral development partners.

Bangladesh will have to pay an additional interest of $104.66 million during its repayment period because of the high interest rate of 3 percent.

The Exim Bank of China will provide $1.02 billion of the $1.4 billion loan for the DPDC project as preferential buyer’s credit (PBC). According to a summary of the loan proposal submitted to the PM, the government has to pay 0.25 percent in commitment fee and 0.25 percent in management fee.

The management fee will have to be paid within 30 days of loan effectiveness no matter whether the loan is disbursed or not. This is a normal practice in case of Chinese loans, said ERD officials.