Russia wants rupee-based trade with Bangladesh to bypass US sanctions

The proposals, aimed at overcoming payment disruptions caused by sanctions on Russian banks, are expected to be discussed at bilateral talks later this year.

Russia has proposed settling bilateral trade with Bangladesh in Indian rupees, establishing a dedicated payment infrastructure, and opening a branch of a Russian bank in Dhaka to overcome transaction hurdles caused by US sanctions on Russian banks.

The proposals will be discussed at the upcoming meeting of the Bangladesh-Russia Intergovernmental Commission on Trade, Economic, Scientific and Technical Cooperation, which is expected to be held in September or October, according to officials at the Economic Relations Division (ERD).

The ERD is scheduled to hold a preparatory meeting today to finalise Bangladesh’s agenda ahead of the bilateral talks.

Russia seeks alternative payment mechanism

According to ERD officials, Russia has proposed settling transactions with Bangladesh in Indian rupees after US sanctions imposed on Russian banks following the outbreak of the Russia-Ukraine war disrupted conventional payment channels.

Moscow has also proposed establishing a bilateral payment infrastructure to facilitate financial transactions between the two countries and has renewed its proposal to open a branch of a Russian bank in Bangladesh.

Russia had made a similar proposal during the previous Awami League government, but the initiative did not progress after the Bangladesh Bank sought the opinion of the Ministry of Foreign Affairs.

Bangladesh has been unable to transfer loan repayments for the Russian-financed Rooppur Nuclear Power Plant project because of sanctions on Russian banks. Russia initially proposed repayment in Chinese yuan, but banks in both China and Bangladesh reportedly declined to participate due to concerns over possible exposure to US sanctions.

As an interim arrangement, Bangladesh has been depositing loan instalments into a Russian account maintained at Sonali Bank. However, the funds cannot be transferred onward to Russian banks because of the sanctions.

Russia’s latest proposal comes as India and Russia already conduct part of their bilateral trade in Indian rupees despite not having a currency swap agreement. Bangladesh also conducts trade with India in Indian rupees alongside the US dollar and other foreign currencies.

According to ERD officials, Bangladesh had earlier proposed that Russia invest the loan repayment funds accumulated in its Sonali Bank account within Bangladesh, but Moscow did not accept the proposal.

Trade expansion and investment

Russia has proposed expanding and diversifying bilateral trade, including establishing a Russia-Bangladesh Business Council and developing a registry of reliable Bangladeshi textile suppliers for Russian importers.

The Russian side has also proposed strengthening cooperation between small and medium-sized enterprises and assisting Bangladesh in establishing special economic zones.

Although Russia supported Bangladesh during the Liberation War, Bangladesh’s exports to the Russian market remain limited despite significant potential. Before the Russia-Ukraine war, Bangladesh’s annual exports to Russia exceeded $500 million, but exports have declined since the conflict began.

According to Export Promotion Bureau data, Bangladesh exported goods worth $245 million to Russia during the July-May period of the current fiscal year.

Bangladesh continues to import fertiliser, wheat and other commodities from Russia.

Bangladesh’s priorities

ERD officials said Bangladesh will place its highest priority on securing Russian technology transfer during the upcoming commission meeting.

Dhaka will seek closer cooperation in renewable energy, power generation and the broader energy sector, alongside collaboration in e-commerce, the digital economy and innovation.

Bangladesh will also seek joint initiatives in agriculture, food security and agro-processing industries, as well as cooperation in technical and vocational education, skills development, connectivity and logistics.

The Bangladesh-Russia Intergovernmental Commission on Trade, Economic, Scientific and Technical Cooperation was established in 2017 as the principal bilateral platform for promoting economic cooperation, energy projects and trade.

Its most recent formal meeting was held virtually on 15 March 2023, following earlier sessions in Moscow in 2018, Dhaka in 2019 and another virtual meeting in December 2021.

Russia offers discounted urea fertiliser

Separately, Russia has reaffirmed its commitment to strengthening Bangladesh’s food security and expanding bilateral trade, while Bangladesh has expressed interest in importing urea fertiliser and other essential food commodities at competitive prices.

According to a press release issued by the commerce ministry, the issues were discussed yesterday during a meeting between Commerce Minister Khandakar Abdul Muqtadir and a Russian delegation led by Chargé d’Affaires Vyacheslav Sentyurin at the Secretariat.

The Bangladeshi side praised Russia’s continued supply of wheat and muriate of potash fertiliser, describing it as important for ensuring the country’s food security.

The Russian delegation expressed interest in supplying about 2.8 lakh tonnes of urea fertiliser to Bangladesh Chemical Industries Corporation under a government-to-government arrangement. The delegation proposed supplying the fertiliser at $10 per tonne below prevailing international market prices.

The two sides also discussed expanding cooperation under the existing memorandum of understanding between the Trading Corporation of Bangladesh and JSC FEC Prodintorg for the supply of essential commodities.

Russia further expressed interest in supplying sunflower oil, yellow peas, chickpeas, red lentils and green lentils to Bangladesh.

Muqtadir welcomed Russia’s interest in expanding bilateral trade and said Bangladesh is committed to increasing trade, investment and economic cooperation on the basis of mutual benefit.