Budget-bankrolling funds are flowing in as Japan now agrees to lend Bangladesh around US$350 million following the footstep of multilateral lending trios of the IMF, the ADB and the World Bank, officials said Monday.

Bangladesh's largest bilateral donor, Japan, at a negation on Monday with the Finance Division and Economic Relations Division (ERD) gave the assurance of budget-support credit, said Ministry of Finance (MoF) officials.

"We sat for negotiations virtually on Monday. Japan may provide JPY50 billion (US$345 million) to JPY60 billion ($414 million) worth of budgetary support to Bangladesh," said one official.

"We are expecting the credit within this fiscal year (FY) 2024-25, ending on June 30," he added.

In a move that underscores the strong bilateral ties between the two nations, Japan has agreed to provide Bangladesh with this budgetary support, analysts say. This financial assistance comes at a crucial time for Bangladesh, which is navigating a period of moderated economic growth and grappling with various domestic and global economic headwinds.

The announcement follows recent budget-support commitments from multilateral lenders like the International Monetary Fund (IMF), the Asian Development Bank (ADB), and the World Bank.

While the exact terms and conditions binding Japan's support have yet to be fully disclosed, this contribution is expected to contribute to bolstering Bangladesh's foreign-currency reserves and provide much-needed fiscal space for the government.

Sources within the MoF have indicated that these funds will be instrumental in stabilizing the exchange rate and addressing potential balance-of-payments challenges.

This assistance from Japan is believed to underpin unshaken confidence in the country's long-term economic prospects despite the current slowdown driven by internal and external adversities.

Earlier, Tokyo had provided $225 million worth of budgetary support to Bangladesh in 2023 for minimising budget deficit.

Macroeconomic context

Bangladesh's economy is currently experiencing a deceleration in growth. The World Bank recently revised down its GDP growth forecast for the fiscal year (FY) 2024-25 to 3.3 percent, citing factors such as subdued investment and political uncertainty.

Similarly, the ADB projects a 3.9-percent growth for FY2025 before a potential rebound in FY2026. These projections reflect a slowdown from the 5.8-percent growth experienced in FY2023 and the 4.2-percent rate in FY2024.

Several factors are contributing to this Bangladesh's moderated growth, including decreased export growth. While the readymade-garment sector continues to show resilience, overall export growth has slowed.

Low investment

Both private and public investments have seen a decline due to political transitions, rising borrowing costs, and increased input prices.

Elevated inflation

Inflation remains a significant concern, projected by the ADB to reach 10.2 per cent in FY2025, driven by supply-chain constraints and currency depreciation.

Financial-sector vulnerabilities

Liquidity challenges and rising non-performing loans in the banking sector pose additional risks.

Notwithstanding these challenges, Bangladesh has seen robust growth in remittance inflows, which, along with exports, has helped bolster the current-account balance. The current interim government is also undertaking structural reforms aimed at strengthening economic management and governance.

Japan's role as a key development partner: Japan has historically been the largest bilateral development partner for Bangladesh. Their support spans various crucial sectors, including infrastructure, energy, transportation, agriculture, water and sanitation, and human-resource development.

This new budgetary support adds to the substantial Official Development Assistance (ODA) that Japan has provided over the years.

In March 2025, Japan signed a $575-million loan agreement with Bangladesh to support food- safety infrastructure and energy projects.

This demonstrates a continued commitment to Bangladesh's long-term development goals. Japan's ODA loans are known for their concessional nature, featuring low interest rates and favourable repayment terms, finance officials say.

Looking forward

This aggregate financial support from multilateral institutions and Japan is expected to provide a cushion for the Bangladesh economy as it navigates current headwinds.

These funds, coupled with ongoing reform efforts, aim to stabilise the macroeconomic situation and pave the way for a gradual recovery and sustainable growth in the medium term.

The focus will likely be on implementing prudent fiscal policies, enhancing revenue mobilisation, and fostering a stable investment climate.