Bangladesh Seeks $5 Billion Loan From China
Bangladesh is in discussions with China for a loan of approximately $5 billion to strengthen the nation’s declining foreign-exchange reserves, according to the central bank governor, drawing the South Asian country closer to Beijing.
The funds will be denominated in yuan and provide exporters with access to financing they can use to pay for crucial raw material imports from China, Governor Abdur Rouf Talukder stated in an interview in Dhaka on Tuesday. He added that the negotiations are currently in a technical phase.
Bangladesh’s imports from China surpass its exports by more than 10 times, placing significant strain on the country’s reserves. “If we obtain this loan, it will benefit us in two ways: we can settle some of the Chinese payments in yuan, and it will contribute to building our reserves because the renminbi is a reserve currency” approved by the International Monetary Fund, he explained.
The country’s foreign reserves have steadily diminished since the pandemic, primarily due to plummeting exports—garment shipments constitute about 10% of the economy—and soaring commodity prices. Last year, Bangladesh secured $4.7 billion in loans from the IMF, helping it avert the type of economic crisis that Sri Lanka experienced. However, exports remain under pressure, and importers are struggling to acquire dollars. In May, Fitch Ratings downgraded the nation’s credit rating further into junk territory due to its declining reserves.
Reserves stood at $21.8 billion as of June 30, sufficient to cover 2.5 months of imports, according to central bank data. The IMF has established a target of 3.6 months of import cover by June 2027. Imports from China reached $16 billion in 2023.
In his first exclusive interview since assuming the role two years ago, Talukder expressed his expectation of reserve improvement after September when the U.S. Federal Reserve begins reducing interest rates. This would stimulate inflows into developing markets such as Bangladesh, while commodity prices have also returned to pre-Covid levels, signifying less demand for dollars to finance imports, he stated.
Prime Minister Sheikh Hasina is scheduled to travel to Beijing next week, where financial support is likely to be a topic of discussion. Bangladesh shares strong commercial and defense ties with China, which is the South Asian nation’s largest trading partner.
With a population exceeding 170 million, Bangladesh relies heavily 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 implement a number of reforms, including currency and budget measures, to bolster the economy. Bangladesh Bank is shifting 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 initial step towards adopting a free-floating currency.
Talukder indicated that transitioning to a floating currency hinges on improvements in the balance of payments—which broadly reflects the difference between a country’s foreign inflows and outflows—and reserves.
“We need to wait until the balance of payments becomes positive and reserves begin to increase,” he said. “When these conditions are met, we will proceed towards an open market.”
Talukder stated that the central bank’s “primary responsibility” is to reduce inflation to a desired level below 6% in the current fiscal year ending in June 2025. Inflation remains around 9% despite the central bank raising its interest rate by 350 basis points to 8.5% since May 2022.
“From July onwards, we will observe a decline in inflation,” the governor said.
Talukder, 60, assumed office in July 2022, confronting a currency devaluation and inflation surge at the time. Since then, he has endeavored to introduce more flexibility into market interest rates and the currency, playing a key role in securing 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, where he played a pivotal role in budget reform. He contributed to streamlining government administration, such as implementing payroll automation for employees.
For the next two years of his tenure, Talukder stated that his primary objective is to rectify the banking system. Analysts have highlighted governance failures within the banking sector, which have resulted in elevated loan default rates, posing substantial risks to the overall economy.
Talukder expressed his desire to lower the non-performing loan ratio at banks to below 8% by the end of June 2026, from approximately 11% in March, and enhance governance.