While the BNP has alleged that 1.75 percent interest for the $1 billion loan from India is very high, facts about loans taken by different previous governments show that the rate is not high.
The main opposition party also found it disgraceful that the government was signing the loan deal with Indian Exim Bank instead of the Indian government. In practice, most of the bilateral loans are typically signed with national bank of the lending country.
Like any other developing nation, Bangladesh has taken different types of loans and grants from different countries and multilateral donors—sometimes on hard conditions and sometimes soft.
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Whenever Bangladesh has taken any hard or tied loan from a donor, the interest rate has ranged between 2 percent and 5 percent.
The loan from India is a commercial or tied loan with a 20-year repayment period having conditions like the borrower has to purchase certain things from the lending country. Such conditions are not unique. Even countries like the USA or Japan had given tied loan to Bangladesh in the past.
When the BNP was in power in the early nineties, it had signed a $109 million dollar Supplier's Credit deal with China to fund the Barapukuria coal mine project that sought 5 percent interest rate and 17 years repayment period. Plus, the loan demanded that at first Bangladesh make a down payment of 10 percent of the total loan.
Former minister and a member of BNP standing committee MK Anwar in a party statement compared the interest rate of the Indian tied loan with that of soft loans sometimes offered by multilateral donors like the World Bank, Asian Development Bank (ADB), and many developed countries.
According to Economic Relations Division (ERD), soft loans are based on grants, and the donors only put a service charge below 1 percent—and no interest rate. While the BNP stated that such loans can be obtained from “any multinational bank”, the fact is, soft loan is very hard to find as the donors impose conditions against them and have their last say about granting it.
Every year, the World Bank and the ADB offer Bangladesh several soft loans. But in such cases, Bangladesh must comply with their conditions. Both these banks select the projects from an array of proposals from Bangladesh and then monitor all the progress. The availability of such loans is also restricted.
Side by side, the ADB offers countries like Bangladesh commercial loans with interest rates swinging between 3 and 5 percent. Bangladesh took such a loan of $250 million at an interest rate of 3.5 percent to supportits budget.
Again conditions of tied loans can vary from country to country. For instance, a Chinese tied loan completely restricts Bangladeshi procurement of materials from certain companies. It can even be restricted within a single company and Bangladesh would have no choice. In case with the Indian loan condition,
Bangladesh will be compelled to buy materials from India— but from manufacturers selected through a country-restricted tender.
On the question whether it is disgraceful for the country to sign a bilateral loan agreement with a national bank, an ERD official notes, “During the caretaker government's tenure, the government signed a loan with the South Korean Exim Bank. Presently we are negotiating a loan with China for financing a fertiliser factory in Sylhet and introducing 3G technology for the telecom sector of the country. This agreement will also be signed with the Chinese Exim Bank with an interest rate higher than 2 percent.”