Economy
Bangladesh to tap China for $5bn loan to bolster economy
Bangladesh is in talks with China for a loan of about $5 billion to bolster the nation’s dwindling foreign-exchange reserves, the central bank governor said, drawing the South Asian country closer to Beijing.
The funds will be denominated in yuan and give exporters access to financing they can use to pay for much-needed raw material imports from China, Governor Abdur Rouf Talukder said in an interview in Dhaka on Tuesday. The talks are at a technical stage, he added.
Bangladesh’s imports from China exceed its exports by more than 10 times, putting a huge strain on the country’s reserves. “If we get this loan, it will help us in two ways: we can settle some of the Chinese payments in yuan and it will help to build our reserves because renminbi is a reserve currency” approved by the International Monetary Fund, he said.
The country’s foreign reserves have steadily declined since the pandemic, largely due to plunging exports — garment shipments make up about 10% of the economy — and soaring prices of commodities. Bangladesh last year secured $4.7 billion in loans from the IMF, helping it ward off the kind of economic crisis that Sri Lanka went through. Still, exports remain under pressure and importers are struggling to get their hands on dollars. Fitch Ratings in May cut the nation’s credit score further into junk because of its falling reserves.
Reserves stood at $21.8 billion as of June 30, enough to cover 2.5 months of imports, according to central bank data. The IMF has set a target of 3.6 months of import cover by June 2027. Imports from China stood at $16 billion in 2023.
In his first exclusive interview since being appointed to the role two years ago, Talukder said he expects reserves to improve after September once the US Federal Reserve starts cutting interest rates. That would fuel inflows into developing markets like Bangladesh, while commodity prices have also returned to pre-Covid levels, meaning less demand for dollars to pay for imports, he said.
Prime Minister Sheikh Hasina is due to travel to Beijing next week, where funding support will likely be on the agenda. Bangladesh shares strong commercial and defence ties with China, which is the South Asian nation’s biggest trading partner.
A country of more than 170 million people, Bangladesh is heavily reliant on the garment industry and remittances from abroad for foreign inflows. Global clothing brands like Hennes & Mauritz AB, Adidas AG, Wal-Mart Inc. and Gap Inc. have operations in the country.
Under the IMF loan program, Bangladesh is required to undertake a number of reforms, including on the currency and budget to help put the economy on a stronger footing. Bangladesh Bank is moving away from a managed currency framework to help rebuild its foreign exchange reserves. In May, it introduced a crawling peg system for the taka as the first step toward adopting a free-floating currency.
Talukder said moving to a floating currency hinges on an improvement in the balance of payments — which broadly refers to the difference between the foreign inflows and outflows of a country — and reserves.
“We need to wait until the balance of payments turns positive and reserves start building,” he said. “When these conditions are met, we’ll go pretty much for the open market.”
Talukder said the central bank’s “first and foremost responsibility” is to bring inflation down to a desired level of below 6% in the current fiscal year ending in June 2025. Inflation remains around 9% despite the central bank hiking its benchmark interest rate by 350 basis points to 8.5% since May 2022.
“From July onwards, we’ll see that inflation will start declining,” the governor said.
Talukder, 60, took office in July 2022, facing a currency devaluation and inflation spike at the time. He’s since tried to bring more flexibility to market interest rates and the currency, and played a key role in helping the country secure the IMF’s loan last year.
Prior to joining the central bank, Talukder worked for 22 years in the finance ministry, including four years as the finance secretary, playing a key role in budget reform. He helped to streamline government administration, such as implementing payroll automation for employees.
For the next two years of his term, Talukder said his main goal is to clean up the banking system. Analysts have pointed to governance failures in the banking sector, which have led to high loan default rates, posing significant risks to the overall economy.
Talukder said he wants to bring the non-performing loan ratio at banks down to below 8% by the end of June 2026, from about 11% in March, and improve governance.
Expatriate Bangladeshis sent approximately US$ 2.11 billion in remittances during the first 28 days of September in the fiscal year 2024-25, according to data released by Bangladesh Bank on 29 September.
Of this total, state-owned and specialised banks handled $679.10 million, while private banks received $1.43 billion in remittances.
Chief Adviser to Bangladesh’s interim government, Professor Muhammad Yunus, has vowed to expedite reforms and hold elections swiftly. Yunus, who recently assumed the role after the collapse of Prime Minister Sheikh Hasina’s 15-year administration, expressed his commitment during an interview with Tokyo-based news outlet NHK WORLD in New York on Sunday. He was attending the United Nations General Assembly at the time.
Following mass student-led protests that ended Hasina’s long-standing rule in August, Yunus stepped in as the leader of the caretaker government. Known for founding Grameen Bank, an institution providing microloans to the underprivileged, Yunus, along with the bank, earned the Nobel Peace Prize in 2006 for his efforts in poverty alleviation.
During the interview, Yunus emphasized that the interim government’s primary mission is to implement reforms promptly and ensure elections are held as soon as the groundwork is complete. He underscored the importance of success, stating, “Failure is not something that we can accept.”
Addressing the pivotal role of students in the ousting of the Hasina administration, Yunus acknowledged the sacrifices made by young people, referring to their involvement as part of a “revolution.” He highlighted his intention to engage the younger generation in shaping policy.
Furthermore, Yunus called for continued support from Japan, Bangladesh’s largest donor, during this crucial transition period. He stressed that Japan’s assistance is vital to stabilizing Bangladesh’s economy and fostering a democratic foundation in the nation.
Syeda Rizwana Hasan, the Adviser for Environment, Forests, and Climate Change, announced today that steps will be taken to restrict the use of polythene shopping bags to safeguard future generations.
Starting from October 1, polythene bags will be banned in shopping malls, followed by a ban in kitchen markets from November 1.
“Everyone must take responsibility and stop using polythene voluntarily. Action against polythene producers will begin from November 1,” Rizwana Hasan stated during a seminar.
The Department of Environment (DoE) organized the seminar to raise public awareness about alternatives to banned polythene bags.
Rizwana Hasan highlighted that the restriction on polythene will be executed in phases according to legal provisions, and discussions with shopping centers and store owners are ongoing to ensure a smooth transition.
She also announced plans to make the government secretariat a plastic-free zone by December.
Other speakers at the seminar included Environment Secretary Dr. Farhina Ahmed, DoE Director General Dr. Abdul Hamid, Director Rajinara Begum, President of the Shop Owners Association Muhammad Helal Uddin, and Md. Arifur Rahman Bhuiyan, Assistant Professor of Environmental Science at BUP. They discussed the harmful effects of polythene and the need for alternative products.
Earlier, Rizwana Hasan inaugurated a fair showcasing eco-friendly alternatives to polythene bags and visited 24 stalls. The fair featured products from government and private entrepreneurs, including reusable bags, jute bags, paper bags, and items made from bamboo and cane.
