Conflicts of Interest in Bilateral Projects: Loans from India, China pose risks for Bangladesh’s infrastructure

Staff Reporter :

Infrastructure development in Bangladesh is becoming increasingly vulnerable to geopolitical influences, particularly in securing Government-to-Government (G2G) loans from India and China, according to a task force report on economic reforms.

The report cautions that this reliance creates uncertainty in funding availability and project execution, making long-term planning and sustainable development more challenging.

Titled “Task Force Report on Re-strategising the Economy and Mobilising Resources for Equitable and Sustainable Development,” the document highlights that while G2G loans often offer lower interest rates and extended grace periods, they come with strategic conditions that extend beyond purely financial considerations.

Shifting geopolitical dynamics are increasingly affecting the release of funds, exposing Bangladesh’s infrastructure projects to external political pressures. The report was submitted by Planning Adviser Wahiduddin Mahmud on Thursday to Chief Adviser Prof. Muhammad Yunus.

India’s Lines of Credit (LoCs) have significantly contributed to Bangladesh’s development, but they come with strict procurement conditions. A key requirement mandates that 75% of project materials and services be sourced from India, limiting Bangladesh’s ability to secure better prices or opt for higher-quality alternatives.

Additionally, slow fund disbursement has hindered project execution. As of September 2022, only $1.5 billion of India’s total LoC commitments had been disbursed, reflecting a utilisation rate of just 19%. The report highlights that delays in fund releases-often influenced by broader diplomatic and political factors-have disrupted essential infrastructure projects.

Similarly, China’s G2G funding presents comparable challenges. While providing significant financial support, Chinese loans have been criticised for their lack of transparency and the risks of debt dependency. Geopolitical considerations often influence loan terms, project approvals, and the prioritisation of disbursements, making Bangladesh vulnerable to external pressures.

The report underscores that infrastructure projects financed through bilateral agreements often suffer from conflicts of interest. In many instances, the same entities from the funding country handle feasibility studies, detailed designs, construction, and supervision, leading to inflated costs.

This pattern is evident in several key projects. They are the Jamuna Railway Bridge, funded by the Japan International Cooperation Agency (JICA), saw all major contracts awarded to Japanese firms, the JICA-funded Third Terminal at Hazrat Shahjalal International Airport was designed and built by Japanese contractors and the Karnaphuli Tunnel project, financed by China, also followed a similar model, with Chinese firms managing planning, construction, and supervision.

The lack of open competition in these projects has led to significantly higher construction costs compared to similar developments in other countries.

To reduce exposure to geopolitical influences, the task force advises Bangladesh to lessen its reliance on bilateral funding arrangements.

The report recommends include strengthening institutional capacity for independent project evaluation, diversifying funding sources to minimise political risks, implementing best practices in procurement and cost management to ensure greater transparency and efficiency.

Without strategic reforms, the report warns, Bangladesh’s infrastructure projects will remain vulnerable to financial uncertainty, external influence, and escalating costs, undermining the country’s long-term development prospects.