Bangladesh will ask Japan to reconsider the interest rate on loans from Japan, which has risen to 3.5%, during Prime Minister Tarique Rahman's four-day visit to the country.
The government will also seek 40-year loans with appropriate grace periods for priority infrastructure projects and an extension of concessional financing for three years beyond Bangladesh's graduation from the least developed country (LDC) category.
The proposals are outlined in a government report on Bangladesh-Japan bilateral economic cooperation prepared ahead of the prime minister's visit, which begins today.
The prime minister left Dhaka early Monday for Tokyo.
Economic Relations Division (ERD) officials said the Japan International Cooperation Agency's (Jica) interest rates are revised every six months, which rose to 3.5% from 3.05% in October.
The government fears the rate could rise further, increasing development financing costs, straining public finances and delaying project implementation.
According to the ERD report, Bangladesh received highly concessional Japanese loans as an LDC, with interest rates at 0.1% until 2015 and below 1% until a few years ago.
Jica's standard rate for eligible LDCs and low-income countries rose from 0.7% in April 2020 to 3.5% from 1 October 2026, with a 30-year repayment period and a 10-year grace period.
Bangladesh will argue that Japanese official development assistance (ODA) should retain its concessional character rather than approach market-based financing costs.
According to the report, Bangladesh acknowledges changes in international interest rates and Japan's own financing conditions. However, it considers continued access to concessional Japanese loans essential given Bangladesh's current economic circumstances.
High domestic borrowing costs, limited fiscal space, substantial infrastructure financing needs, and exchange rate and external-sector risks have added to the pressure. Bangladesh must also sustain investment while continuing structural reforms, the report says.
Concern over concessionality
The ERD report warns that higher interest rates reduce a loan's grant element, which measures how favourable its terms are compared with market financing. If it falls below the required threshold, the loan may no longer qualify as concessional.
Maintaining access to affordable, long-term development financing is therefore important for Bangladesh, particularly as international borrowing costs rise and pressure on external debt repayment and debt sustainability grows.
Bangladesh will therefore seek longer repayment periods and favourable rates for priority infrastructure projects. The government argues that large infrastructure investments require substantial upfront funding, while their economic benefits often take years to materialise.
Longer repayment periods and lower interest rates would ease immediate repayment pressures and improve the financial sustainability of these projects.
3-year extension after LDC graduation
Bangladesh will also seek continued access to concessional financing for three years after graduating from LDC to ensure a smoother economic transition, says the report.
Graduation could limit access to preferential financing and raise borrowing costs. Bangladesh wants Japan to factor these risks into the terms of future assistance.
Bangladesh has requested a three-year deferral of its LDC graduation for a smoother transition. The report says continued concessional financing would help Bangladesh manage the transition and pursue its development goals.
Japanese technical assistance
Bangladesh will also seek more grant-based technical assistance from Japan to simplify project approval procedures and accelerate implementation.
The ERD plans to emphasise Japanese expertise and technology in project preparation, institutional capacity-building and improving the efficiency of public investment.
Officials said grant-based technical assistance could strengthen feasibility studies, project design and preparation, reducing implementation difficulties and improving project quality.
The assistance could also help government agencies develop institutional capacity by drawing on Japanese experts' knowledge and experience.
The ERD has proposed establishing a Public-Private Partnership (PPP) Project Preparation Facility to attract Japanese private investment and technology to infrastructure projects.
The proposed facility would support feasibility studies, financial modelling, and risk mitigation, helping build a pipeline of PPP projects. It is expected to reduce preparation time and create more opportunities for Japanese private-sector participation.
Improving the investment climate in economic zones will also feature in the discussions. The government wants to simplify administrative and regulatory procedures, streamline approvals and make one-stop services more effective.
The report also highlights opportunities to draw on Japan's experience in improving public investment efficiency and strengthening public financial management.
Better project selection, preparation, approval and implementation could help Bangladesh secure greater economic and social returns from its limited public resources, the ERD said.