Germany extends €45 million loan to Bangladesh for the first time

Germany, which is known for providing grants to Bangladesh as development assistance, has inked a loan agreement, for the first time with Dhaka.

The €45 million “soft” loan under a €60 million financial package for improving power transmission system in the country’s western zone was signed on Monday at the Economic Relations Division.

German usually does not offer loan to Least Developed Countries..

“I have to say this is an exceptional case,” Lisa Steinacher, director special programme of the German Development Bank (KfW), said after the signing.

She said they had been observing “very closely” Bangladesh’s sector development programmes and understood that Bangladesh had the capacity to repay the loan by generating incomes.

Additional Secretary to the ERD Abul Mansur Md Faizulla, who signed the agreement on behalf of Bangladesh, said it was an effort to “diversify Bangladesh’s loan sources”.

The loan carries 2.49 percent interest rate and has to be repaid in 16 years including five years of grace period.

“In our calculation the proposal is soft in nature,” Faizulla said. The financial package also includes €15 million grants.

He said the government also considered Germany’s propensity to transfer technologies to countries like Bangladesh before the signing.

Exceptional loan

KfW director Steinacher said this loan agreement did not mean they would be able to offer loans for an unlimited period.

“It’s an important step because grant funds are limited by nature. So, we are raising the funds from the capital market and the sum we can derive is a lot bigger”.

“However, we cannot not say that from now on we will continue to provide loan because it is still an exceptional case and, for every loan we provide for the energy sector, we will need get many approvals,” she said.

She added that this could become a “normal instrument” perhaps “six years down the line”.

Lowering grants dependency

Since independence, Germany has provided Euro 2.4billion as grants to Bangladesh for various socio-economic development projects.

Its development arm, GIZ, is currently implementing seven projects involving renewable energy.

“We can say they are tested and trusted friend of Bangladesh,” the additional secretary Faizulla said.

He termed the loan agreement “another step forward” in the relations and said Germany would also finance in the power projects over the next two years, as decided last month in the biennial negotiations.

Of the total Euro 211 million financial assistances, the power sector would get 137 million as loan, he said.

“We are happy that Germany is coming in a bigger way,” he said, adding that Bangladesh could not depend on grants as the country was progressing “rapidly”.

He said Bangladesh had to depend on 87 percent to 88 percent grants after liberation, but currently it was nine to 10 percent.

“The country is progressing; we cannot depend on grants anymore,” he said.

He said that in the light such developments the country was happy to accept a loan from Germany. “We are diversifying our sources”.

Charge d’ Affaires of the German embassy Ferdinand von Weyhe said Bangladesh-German relations was “very robust, strong and will continue because Germany will continue to be on the side of Bangladesh”.

The purpose of the project, to be implemented in western zone comprising part of the Dhaka division and the entire Khulna and Barisal divisions, is to build “reliable and efficient” electricity supply lines.

Power Grid Company of Bangladesh would implement the project from Jan 2015 to Dec 2018 by new construction, extension, and rehabilitation of transmission lines and substations.

The German embassy says the efficiency gains from this project alone will be “big enough to provide electricity to nearly 200,000 additional households”.