Under the leadership of Dr. Muhammad Yunus, the interim government assumed office 39 days into the current 2024–25 fiscal year. However, the country’s economy was already facing multifaceted crises due to a severe dollar shortage, widespread bank looting in the name of loans, and rampant capital flight.
During this period of high inflation that heavily burdened the general public, the interim government sought an additional $5 billion in loan assistance from development partners—a request made by the Chief Adviser himself during a national address marking one month of the interim government’s tenure. While on a visit to the United States at the time, he also appealed to donor agencies to support Bangladesh in its reconstruction and reform efforts. Yet, nearly eight months later, there has been no response to the appeal.
According to data from the Economic Relations Division (ERD), foreign loan commitments stood at approximately $3.0053 billion during the first nine months (July–March) of the fiscal year—a 58.5% decrease from the same period in the previous fiscal year (2023–24), when commitments totaled $7.2421 billion.
After taking office, the interim government stated that it had secured substantial aid commitments from donor agencies to repay the massive debts left by the previous Awami League administration and to reform the financial sector. In addition to the existing aid pipeline, the government sought an extra $5 billion in loan support. Of this, $3 billion was requested from the International Monetary Fund (IMF), and $1 billion each from the World Bank and Japan International Cooperation Agency (JICA).
Dr. Yunus made his first overseas trip as head of the interim government last September to the United States, where he attended the UN General Assembly. While there, he held meetings with several heads of state, heads of agencies, and business leaders. During an event in New York, he invited American businesses to partner in Bangladesh’s new journey. Subsequently, he also visited China, Thailand, Qatar, and other countries. He had also pledged to strengthen ties with donor agencies. However, the results of these efforts are yet to be seen, and foreign loan commitments continue to decline.
Economists and sector experts say that donor agencies typically base their funding decisions on social and political stability. Although it has been over nine months since the interim government assumed office, stability has not fully returned, contributing to reduced loan commitments. However, the interim government is pushing forward with one or two large-scale projects, which could attract targeted investments from foreign partners.
Dr. Mostafizur Rahman, Distinguished Fellow at the Centre for Policy Dialogue (CPD), told Bonik Barta that foreign loan commitments usually come in two forms: budgetary support and project-specific loan assistance. “Loan support is typically extended when new projects are launched. Since this government hasn’t initiated any new projects, foreign loan assistance has declined.”
He believes new loan inflows may come as part of the government’s budgetary support. “The upcoming budget may include development programs worth over Tk 2 trillion, with 45% expected to come from foreign loans. If IMF disbursements proceed, that would significantly contribute to this external financing,” Dr. Mostafizur added.
In the current fiscal year’s first nine months, five countries and donor organizations accounted for the highest loan commitments. Among them, the Asian Development Bank (ADB) committed $700 million, the World Bank pledged $944.5 million, the Asian Infrastructure Investment Bank (AIIB) committed $160 million, Japan pledged $834.1 million, and other countries and agencies collectively pledged $366.6 million.
In addition to the drop in loan commitments, actual disbursements have also decreased. During July–March of FY2024–25, donor agencies disbursed $4.8088 billion—down from $5.6316 billion during the same period of the previous fiscal year. Of this, $4.4758 billion came as project loans, while $332.9 million came as grants.
Economists suggest the lack of new development projects is a key reason for the decline in foreign aid. They also note that donor agencies monitor various internal factors, such as governance and administrative efficiency, when deciding on loans. Bureaucratic complications and negotiation gaps with donor agencies have further impacted aid flows. Ongoing confusion over project selection could lead to an even greater drop in assistance.
Dr. Selim Raihan, Executive Director of the South Asian Network on Economic Modeling (SANEM) and a professor of economics at Dhaka University, told Bonik Barta, “There are several reasons for the decline in foreign aid. First, many projects have slowed or stalled. Bureaucratic complications persist, and indecision within the interim government regarding project selection may be a factor. During the previous government, there was widespread corruption in many development projects. As a result, if the current government fails to negotiate properly or do its homework, fund disbursements won’t happen. That’s a significant reason for the aid shortfall, as development partners are now more cautious.”
He added, “This government had ample time to negotiate with donors and could have taken advantage of opportunities to secure low-interest loans.”
ERD sources report that project implementation in the past nine months has been the lowest in a decade. In the first eight months of FY2024–25, only 24.27% of the Annual Development Programme (ADP) was implemented—the lowest rate in ten years for that period. In comparison, the previous year’s implementation rate was 31.17%. The current fiscal year includes 1,353 projects with a total allocation of Tk 2.78288 trillion, but as of February, only Tk 675.5321 billion had been spent, leaving Tk 2.10735 trillion to be used in just four months.
Following the interim government’s assumption of power, debt repayments have increased compared to the previous fiscal year. In the first nine months of FY2024–25, $3.212 billion in foreign debt was repaid—$2.011 billion in principal and $1.201 billion in interest. During the same period in FY2023–24, total repayments stood at $2.5715 billion, including $1.5166 billion in principal and $1.0549 billion in interest.
Dr. Mustafa K Mujeri, former Chief Economist of Bangladesh Bank and Executive Director of the Institute for Inclusive Finance and Development (InM), told Bonik Barta, “The majority of foreign loans come as budget support. The significant gap between government revenue and expenditure is typically covered through foreign aid. In recent years, Bangladesh has experienced high inflation, economic stagnation, and declining employment. As a result, public saving capacity has reduced. Donor countries assess social and political stability before increasing aid commitments. Without that stability, expecting more aid is unrealistic. Donors don’t fund short-term—six months or one year—projects.”