China has agreed to lower the interest rate on its concessional loans to Bangladesh in an exclusive offer of low-cost development assistance, which could “significantly improve” the country’s debt portfolio.
The interest rate on the Chinese loans will be pared down to 1.0 per cent from the previous level of above 2.0 per cent, sources in the Finance Ministry said.
They said the Chinese side conveyed this major shift in their position during the recent visit of the chief of its development agency.
“To honour the longstanding friendship and to strengthen the economic cooperation between the two countries” the Chinese side confirmed that they would be considering making special adjustments to the interest rates and the repayment period of the Chinese government concessional loan (GCL.) for Bangladesh, sources said.
They decided that ‘such arrangements shall only be known to the two countries’.
According to the soft-loan offer, the yearly interest rate is reduced to 1.0 per cent, with a repayment period of 20 years and a grace period of five years.
In response to Bangladesh’s request for a longer payback time, the Chinese side stated that the tenure might be extended to 30 years and the grace period to 10 years, but the interest rate would be 2.0 per cent.
Economists feel that this move will be a significant relief for Bangladesh, which has financed the majority of its infrastructure projects with Chinese funds.
“This will improve our long-term debt portfolio significantly,” economist Dr Abdur Razzaque told the FE when asked about the decision.
