Bangladesh political turmoil could risk $4-5 billion of credit, grants disbursed by India

It is not certain whether the government that has taken over after the fall of ousted Prime Minister Sheikh Hasina’s regime will take ownership and honour the sovereign guarantees, sources have said.

 “New Delhi will try its best to ensure that the interim government now in place in Bangladesh and the subsequent government that takes over after the proposed elections will not reject the development projects funded by India that are underway. An estimated $4-5 billion have already been disbursed as credit and grants. The Lines of Credit (LOC) are backed by a sovereign guarantee and in case these are rejected, India may be forced to write them off which will be a heavy economic blow,” a source tracking the matter told businessline. 

Over the last eight years, India extended three LOCs to Bangladesh worth $8 billion and additional grant assistance for several infrastructure projects, according to a Ministry of External Affairs note. The sectors include roads, railways, irrigation, shipping and ports. “The problem is that many of these projects and LOCs were criticised by opposition parties and some others in Bangladesh on grounds of alleged corruption,” the source said.

India’s continued sheltering of Hasina, who fled to India on August 5 after anti-government agitators targeted her residence, has made the situation trickier. “None of the European countries where Hasina reportedly sought asylum have given a positive response yet.

 In case the new government in Bangladesh wants to try her on murder charges and asks India for her extradition, the situation could get more uncomfortable,” the source said.

Bangladesh witnessed massive student protests against Hasina the past month leading to her ouster. It was followed by more political and communal violence in the country but the situation started stabilising after the interim government headed by Nobel laureate Muhammad Yunus assumed charge. Uncertainty over India-Bangladesh ties, however, continues.

It is not just credit and grants given for development projects that have come under shadow but payments due to Indian oil companies that supplied oil to Bangladesh may also be at risk.

“Bangladesh has been struggling to pay its foreign suppliers of oil, including India, because of its foreign exchange crisis. Indian suppliers are now left high and dry as they do not know when they will get the due payments,” the source said.

Interestingly, Bangladesh had asked India for $2 billion earlier this year to also help pay the oil dues, but the deal never got finalised, the source added