An Economic Relations Division (ERD) source said the ADB last month offered the loan expected to be used in infrastructure development. If a good progress is made in this area, the Manila-based regional development bank may consider raising the loan amount.

Referring to the investment proposals of Tata and Asian Energy to the tune of $4.5 billion, the ADB said Bangladesh will need to improve its infrastructure to avail those investments and the government can use part of the ADB's OCR loan towards that end.

If the OCR loan is used in developing the country's infrastructure facilities, the return Bangladesh will get by way of more foreign direct investment (FDI) will be significantly higher than the cost of the loan, the ADB maintained.

Besides, the policy and institutional reforms associated with the ADB borrowing will make a positive and long-run contribution to the overall performance of the economy, which would not happen if the money were borrowed from other sources.

According to the ERD source, Bangladesh has been increasingly becoming dependent on high-cost domestic borrowing and supplier's credit, while receiving less and less concessional foreign aids.

An ADB analysis shows the country's outstanding foreign aid was $16.8 billion in 1995, which increased only by $1.7 billion to reach $18.5 billion in 2004. In contrast, its outstanding domestic debt tripled from $3.1 billion in 1995 to $9.5 billion in 2004.

According to ERD statistics, the government took supplier's credit worth $535 million in FY02-04. In the previous three years, FY99-FY01, the amount was $158 million.

Recently, the International Monetary Fund (IMF) set a $250 million supplier's credit limit for Bangladesh.

The ERD source said the ADB has offered the OCR loan also to make sure that Bangladesh does not slip into a condition of inability to pay off its debts.

Until 1999, the ADB used to categorise Bangladesh as a Group-A borrower due to its low level of income and weak debt-repayment capacity. So, the country was eligible to borrow only from the concessionary Asian Development Fund (ADF). After 1999, Bangladesh's status was upgraded to a Group B1 country, making it eligible also for the OCR loans.

Typically the interest rate on an ADF loan is less than 1 percent and the loan can be paid off over a 50-year period.

The ADB proposal said though the terms of OCR borrowing are harder than what Bangladesh is used to, they are still softer than the pure commercial loans. An OCR loan is refundable over a period of 20 years, with a provision for another five years as a grace period, while its interest rate is usually less than 4.2 percent.

Sources said half of the ADB's planned $1.8 billion loan for Bangladesh over the next three years is OCR.