The cost of foreign-funded projects is rising sharply as the depreciation of the taka drives up repayment obligations and forces repeated revisions to project budgets.
Planning Commission officials have been receiving a growing number of proposals seeking higher project costs, with implementing agencies citing the weaker exchange rate against the US dollar. The trend is increasing both the overall cost of development projects and the government’s external debt burden.
Experts say the pressure began to intensify in mid-2022, when Bangladesh faced a shortage of US dollars, mounting strain on foreign exchange reserves, and economic uncertainty triggered by the aftermath of the Russia-Ukraine war.
At the time, the exchange rate stood at around Tk85 to Tk86 per dollar. It has since risen gradually to more than Tk120, representing a depreciation of over 40 per cent in the value of the local currency.
One of the most striking examples is the Rooppur Nuclear Power Plant, the country’s largest infrastructure project.
Under a loan agreement signed between Bangladesh and Russia in 2015, the government borrowed about $11.38 billion to finance the project. At the time, the exchange rate was set at Tk80 per dollar, placing the value of the loan at around Tk91,040 crore.
With the exchange rate now standing at over Tk122 per dollar, the same loan liability has increased to nearly Tk1,16,799 crore, despite no additional borrowing.
That means the government’s debt burden has risen by approximately Tk25,759 crore solely because of the change in the exchange rate.
However, economists argue that currency depreciation may not be the only factor behind rising project costs.
Centre for Policy Dialogue Research Director Khondaker Golam Moazzem said policymakers should examine whether exchange rate fluctuations are being used to obscure other inefficiencies in project implementation.
“In some cases, it is necessary to assess whether delays, negligence, or other cost overruns are also being attributed to exchange rate movements,” he told TIMES of Bangladesh.
He said the impact of currency depreciation would have been less severe for some projects had they been completed on schedule.
“That brings the issue of governance into focus,” he said. “It can also be viewed separately as a problem of weak project implementation.”
A similar pattern has emerged in a project aimed at expanding and strengthening the electricity distribution network in areas under Dhaka Electric Supply Company (Desco).
The project, approved in April 2022, was initially estimated to cost Tk2,272.48 crore, financed through government funds, an Asian Development Bank loan, and Desco’s own resources.
Authorities are now seeking to revise the project by expanding its scope and extending the implementation deadline by another two years to March 2028.
Under the revised proposal, the project cost has risen to Tk2,908.38 crore, an increase of nearly Tk636 crore, or around 28 per cent. Of the additional amount, about Tk528 crore is linked to the foreign loan component alone.
According to the project director, the original Development Project Proposal had calculated the exchange rate at Tk85.80 per dollar. With the rate now rising to over Tk122, the project has come under substantial additional financial pressure.
Planning Division Secretary SM Shakil Akhtar told TIMES that chronic delays in Bangladesh’s project implementation process were worsening the impact of currency depreciation.
“In Bangladesh, projects often fail to start on time, and similarly fail to finish on schedule,” he said.
He said many projects approved years earlier only begin substantive work after long delays caused by administrative complications.
“Even after approval, the necessary funds are often not released on time. A major reason behind this is the lack of efficiency among many project directors.”
Centre for Policy Dialogue Research Director Khondaker Golam Moazzem said long-term projects are generally expected to include built-in mechanisms to absorb economic shocks.
“In long-term projects, risk management and cost adjustment measures are usually incorporated into the project framework from the beginning,” he told TIMES.
“That includes both inflation and exchange rate fluctuations. Therefore, a certain level of additional cost caused by currency movements is considered normal and should ideally be absorbed within the project structure itself.”
Other projects facing rising costs
A 100-megawatt solar power project in Madarganj, Jamalpur, financed through an Indian line of credit, is also facing higher costs because of exchange rate pressures.
When the project was approved in 2021, its estimated cost was Tk1,511.79 crore. Authorities have now proposed increasing the budget by Tk103.44 crore to Tk1,613.61 crore, citing the depreciation of the taka against the dollar.
The original and first revised Development Project Proposals assumed an exchange rate of Tk84.80 per dollar. However, calculations are now being made at Tk110.50 per dollar under the loan agreement, significantly increasing the foreign financing component.
A similar adjustment has been proposed under the “Strengthening and Development of Sustainable Power Sector in Bangladesh” project, where a second revision seeks an additional Tk32.52 crore to cover higher loan-related costs.
The impact is also being felt in a project to install 850,000 smart prepayment electricity meters in areas served by Dhaka Power Distribution Company.
Approved on 1 July 2018, the project was originally scheduled for completion by June 2021, when the exchange rate remained relatively stable. However, delays in implementation meant the project missed that deadline, exposing it to the subsequent depreciation of the taka and resulting in additional costs.
Several other projects, including the development of the south-western transmission grid, have also cited the stronger dollar as a primary reason for rising expenditures.
