Bangladesh Retains Japan for Mega Projects to Repair Bilateral Ties

The newly formed BNP government in Bangladesh has moved decisively to repair diplomatic and economic frictions with Japan, its largest bilateral development partner. Strains had emerged during the tenure of the previous interim administration over the spiralling costs of several high-profile infrastructure schemes. To restore stable relations, Dhaka has committed to advancing two major Japanese-funded metro rail projects—MRT Line-1 and MRT Line-5. It has also resolved a long-standing deadlock by awarding the operations and ground handling of the newly constructed Third Terminal at Dhaka’s Hazrat Shahjalal International Airport to a Japanese consortium.

Resolving the Metro Rail Stalemate

The diplomatic friction peaked when the previous interim administration halted procedural work on the two proposed metro lines, citing exceptionally high cost estimates submitted by Japanese firms. While the current administration has greenlit the resumption of these projects, it intends to negotiate aggressively to trim costs. To oversee this delicate balancing act, the Ministry of Road Transport and Bridges has constituted a seven-member technical committee led by Emeritus Professor M. Shamimuzzaman Bosunia of the University of Asia Pacific.

The State Minister for Road Transport and Bridges, Habibur Rashid, confirmed that it remains the government’s firm policy to construct both metro lines with Japanese financial backing. He noted that active discussions are underway with the Japan International Cooperation Agency (JICA) to rationalise expenditures, expressing optimism about a mutually satisfactory resolution.

Historically, Japan has held a dominant position in Bangladesh’s development ledger. According to data from the Economic Relations Division (ERD) Report, Bangladesh’s total outstanding foreign debt stood at $77.28 billion on 30 June 2025, with Japan accounting for 18% of that figure. JICA’s highly concessional lending terms have traditionally funded critical infrastructure, including the country’s first operational metro line (MRT-6), the Matarbari deep-sea port and power plant complex, and the Bangabandhu Railway Bridge over the Jamuna River.

Nevertheless, the costs of the new mass transit projects have sparked domestic debate. A comparative analysis compiled by the Dhaka Mass Transit Company Limited (DMTCL) reveals that the proposed routes will cost an astonishing 36.18 billion Taka per kilometre. By comparison, the already operational (Uttara-to-Motijheel) line cost 15.74 billion Taka per kilometre, whilst similar modern transit projects across various Indian cities range between 1.5 billion and 4.5 billion Taka per kilometre, excluding land acquisition.

First sanctioned in 2019 under the Awami League administration, MRT Line-1 (connecting Dhaka Airport to Kamalapur, with a branch from Natunbazar to Purbachal) and MRT Line-5 (Hemayetpur to Vatara) were initially budgeted at 52,561 crore Taka and 41,238 crore Taka respectively. Following exhaustive engineering reviews, JICA revised these projections upwards to 96,500 crore Taka for Line-1 and 88,000 crore Taka for Line-5—representing steep budget escalations of 84% and 113%.

The previous DMTCL management, led by veteran transit expert Faruque Ahmed, raised serious objections over these figures, prompting the Ministry of Planning to freeze procurement. Following the political transition, Faruque Ahmed’s contract was terminated. To thaw relations, officials have since held four high-level rounds of talks involving ERD Secretary Shahriar Kader Siddique, Japanese Ambassador Iwama Kiminori, and visiting JICA executives.

JICA has defended the pricing adjustments, pointing out that unlike the mostly elevated MRT-6, the two new lines will run extensively underground. The agency also pointed to the sharp depreciation of the Bangladeshi Taka against the US Dollar, surging global material costs, and substantial design overhauls. For instance, the planned station at Gabtoli had to be lengthened from 300 metres to 650 metres, while the stations at Vatara and Kochukhet required deeper underground excavation.

In response, Bangladeshi negotiators have pointed out that the restrictive clauses built into traditional Japanese loan agreements naturally limit open international bidding. This structural arrangement frequently limits competition to just two or three recurring Japanese corporations. To address these concerns, an official meeting presided over by Finance Minister Amir Khosru Mahmud Chowdhury on 20 May concluded that while cooperation with Japan must continue, Dhaka will maintain tight negotiation parameters and may consider appointing independent international consultants to vet future bids.

Comprehensive Statistical Overview of Project Portfolios

A breakdown of the financial metrics, interest adjustments, and structural transformations under negotiation is structured below:

Airport Operations and Interest Rate Diplomacy

The administration has also cleared the procedural hurdles blocking the commercial operationalisation of the state-of-the-art Airport Third Terminal. Built at a cost exceeding 21,000 crore Taka—funded primarily by Japanese loans alongside a 5,000 crore Taka government contribution—the terminal’s management had been stalled by revenue-sharing disagreements. Following a direct directive from Prime Minister Tarique Rahman to fast-track the facility’s opening, a final agreement is expected to be signed this month.

The Civil Aviation and Tourism Minister, Afroza Khanam, confirmed that a Japanese consortium will manage the terminal under a 73-27 revenue-sharing split in favour of the operators. This corporate consortium comprises the Japan Airport Terminal Company, Sumitomo Corporation, Nippon Koei, and the Narita International Airport Corporation.

Concurrently, Bangladesh is navigating an unexpected rise in debt-servicing costs. Effective 1 April, Tokyo raised its benchmark fixed interest rate for standard sovereign loans from 2.9% to 3.6%, reflecting a broader shift in its domestic monetary policy. In response, Finance Minister Amir Khosru Mahmud Chowdhury dispatched a formal appeal to his Japanese counterpart. The communication highlights Bangladesh’s unique economic vulnerabilities and references Dhaka’s recent request to the United Nations to extend its Least Developed Country (LDC) graduation preparatory phase until November 2029. The Finance Minister has urged Tokyo to maintain the previous, more flexible interest rates for the next three years to ease the country’s fiscal transition.

This diplomatic push coincides with the tenth anniversary of the Holey Artisan Bakery attack. JICA President Tanaka Akihiko is scheduled to arrive in Dhaka for a five-day visit to honour the seven Japanese nationals who lost their lives in the tragedy. Dr Zahid Hussain, former Lead Economist at the World Bank’s Dhaka office, observed in an interview with our representative that while the operational capability of Japanese contractors remains beyond reproach, the opacity surrounding the cost increases warrants careful review. He concluded that while preserving an excellent strategic alliance with Tokyo is a geopolitical and economic necessity for Bangladesh, the government must remain firm in its efforts to control project costs.