Bangladesh

Dhaka Metropolitan Area has over 22 million inhabitants, and the number of people living in the capital increases by 500,000 a year. Access to drinking water for all is a major challenge: to meet demand, its production will need to double by 2030. Yet the city used to cover 70% of its needs through groundwater withdrawals. This is too much for them to be replenished. Since 2002, the authorities aim to address the situation by exploiting surface water. These abundant sources are located near the capital, but they are polluted, and the process to make them clean is complicated.

AFD is co-financing two new drinking water treatment plants to improve the distribution of water resources. They will draw water from rivers further away from the city. They are cleaner, and the project will ensure that they remain so.

In January 2015, we launched a project in partnership with the Asian Development Bank, which aims to increase drinking water production by 500 million liters a day. Some 3 million people will benefit from a more efficient drinking water supply, and 6,000 new connections will be installed. It is completed by a second project, which aims at reducing groundwater withdrawals, improving the quality of the drinking water service, and increasing its production from 450 to 900 million liters a day. It will cover the water needs of 4.5 million people. AFD is the lead donor for this financing, in which Germany’s KfW, the European Investment Bank, and the Danish International Development Agency are participating.

Furthermore, AFD managed a European Union grant to finance the connection of a large number of slums to the water distribution network. Indeed, drinking water supply in the capital’s precarious districts is one of the priorities of the Government of Bangladesh. This project helps connect over 3000 people from low-income communities.

AFD is also supporting the port city of Chittagong in providing collective sanitation services to a part of the population, projected to reach almost 270,000 inhabitants in sewered areas by 2030. This will be done through the construction of a collection network and household connections, as well as a sewerage treatment plant, which will treat up to 50 million liters a day.

AFD, in co-financing with the Asian Development Bank, is also supporting the implementation of a program to strengthen urban governance and institutional capacities, as well as capital investments aimed at improving municipal infrastructure and service delivery in 88 municipalities across the country.

In Bangladesh, power cuts are frequent, including in the capital. The instability of the power grid seriously hinders the country’s economic and industrial development. Aside from drastically increasing its power generation capacity, the power sector operators also need to secure their electricity supply to support the economic and social development of the country.

AFD is supporting the Dhaka Power Distribution Company to extend, strengthen, and modernize its network to meet the growing demand. A first project, started in 2015, financed the extension of the distribution grid by 14 electrical substations. 5 million inhabitants gained access to more reliable electricity, and 250,000 new households (mostly low-income) have been connected.

Since 2019, AFD has been providing additional support by constructing six new transformers and expanding four substations. In addition, a €12 million grant from the European Union is contributing to the implementation of a smart grid pilot project aimed at improving the efficiency of DPDC’s distribution network.

Furthermore, AFD has granted an environmental credit line to Infrastructure Development Company Limited (IDCOL), a financial institution specializing in infrastructure, energy efficiency, and renewable energy, in order to facilitate private investments in these sectors.

With 4,500 exporting factories, Bangladesh is the second-largest textile product manufacturer in the world, after China. The sector accounts for 80% of the country’s exports (mainly to Europe and the USA) and employs some 5 million people.

The Rana Plaza collapse (1,138 people killed in April 2013) highlighted the lack of and/or failure to comply with social and worker protection standards. Certain buyers subsequently set up groups, such as Accord and Alliance, to conduct factory audits and improve working conditions for employees.

Through the Bangladesh Bank, AFD funding enables exporting factories to finance the work necessary to bring buildings up to safety standards. Investments to improve working conditions, limit pollution, and improve the environmental footprint of RMG factories, including better effluent, water, and energy management, are also eligible.

As an incentive, the European Union and KfW are financing an investment bonus scheme, which softens the loan conditions for factories. Complementary to that, GIZ provides technical assistance to factories and commercial banks to facilitate these investments.

AFD supports Bangladesh in implementing its climate policies through a €300 million loan (disbursed in three tranches of €100 million over three years) and a €3.6 million grant-funded technical assistance package. The objective: to strengthen the country’s resilience to the impacts of climate change and support a low-carbon development pathway.

AFD assists the authorities in implementing key reforms:

• improving public finance governance and transparency by integrating climate considerations;
• aligning the water sector and the financial system with the National Adaptation Plan;
• reducing emissions by supporting energy transition policies and implementing the Nationally Determined Contribution (NDC).

During the first phase (2023-2024), AFD contributed to the development of budget planning tools for inclusive climate policies, initiated reforms in the water, energy, and financial sectors, and established a technical cooperation program running until 2026 with Bangladeshi and international partners (ICCCAD, BIDS, UNDP).

This support comes in a context where Bangladesh, highly exposed to extreme weather events and flooding, could face losses estimated between USD 6 billion and USD 25 billion by 2050, affecting 13.3 million people. National plans call for increasing public spending from 1% to 3–4% of GDP. In coordination with the IMF, which granted USD 1.4 billion in 2023, AFD acts as a catalyst for financing and expertise to accelerate the country’s climate transition.