Japan is likely to reduce the interest rate on its lending to Bangladesh by 0.30 percentage points to 0.65 per cent from next month (October), officials said on Monday.
In October 2017, the Japan International Cooperation Agency (JICA) increased its loan interest rate to 0.95 per cent from 0.01 per cent.
"Following the government's request and several discussions, the JICA has agreed to trim down its lending rate on Bangladesh's loans. The new rate will be effective from October," said an official of the Ministry of Finance (MoF).
He also said it is good news that Bangladesh's largest bilateral development partner has decided to cut interest rate on loans, provided under its official development assistance (ODA).
Although the JICA increased its loan interest rate to 0.95 per cent in 2017, it is still the lowest among all other development partners working in Bangladesh, the MoF official noted.
Japan earlier made its lending terms and conditions little bit harder, as Bangladesh graduated as a lower middle income country (LMIC) from its poor country status a few years ago, he added.
The MoF official said other terms and conditions for Bangladesh to get Japanese loans will remain almost the same.
The repayment period for the Japanese loans is 30 years with a grace period of 10 years.
Before October 2017, the JICA's loan repayment period was 40 years with 10 years of grace period.
In addition, the Japanese donor agency charged front-end fee and insurance premium for its loans.
An official of the Economic Relations Division (ERD) said since Bangladesh's per capita income as well as economy is growing, Japan has proposed that it will review the lending terms in future.
Over the last few years, the volume of Japanese yearly aid packages has crossed US$ one billion-mark, facilitating various development projects in the country.
"As Bangladesh needs huge investment for developing its infrastructure amid limited local resources, external financing is required in this regard," he added.
Japan provided assistance worth $ 1.83 billion (Tk 153.26 billion) under its 39th ODA package in June 2018 to bankroll six development projects in Bangladesh.
Under the package, it is providing Yen 2.65 billion (Tk 2.03 billion) loan for the Matarbari port development project.
Besides, Yen 79.27 billion (Tk 60.63 billion) is being provided for the Dhaka MRT (metro rail) line-6 construction (phase-III) project, and Yen 7.36 billion (Tk 5.62 billion) for Dhaka MRT line-5 feasibility study project.
It is lending Yen 67.31 billion (Tk 51.48 billion) for the Matarbari ultra-super critical coal-fired power plant (phase-IV) project, and Yen 37.22 billion (Tk28.46 billion) for the Jamuna railway bridge project.
Moreover, Yen 6.56 billion (Tk 5.01 billion) will be given for the health service strengthening project.
The JICA provided some $ 1.64 billion worth of loan for Bangladesh's six development projects under the 38th ODA.
It has provided nearly $ 12 billion assistance since the financial year (FY) 1971-72.