Bangladesh
6 years ago

Cost of graduation from LDC

Govt to borrow another $450m hard-term WB loan soon

Terms and conditions to be almost similar to that of IBRD funds

The logos of Bangladesh Government (L) and World Bank seen in this photo.
The logos of Bangladesh Government (L) and World Bank seen in this photo.

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Bangladesh is poised to borrow $450 million worth of loan from the Scale-up Facility Fund (SUF) of the World Bank (WB) soon, accepting the terms and conditions almost identical to those of the Bank's hard-term lending window - IBRD (International Bank for Reconstruction and Development), according to officials.

Bangladesh has been one of the highest concessional-loan recipients of the Washington-based multilateral global lender.

Officials at the Ministry of Finance (MoF) said Saturday since Bangladesh has become a lower-middle-income-country (MIC) and would shortly graduate to a non-LDC (least-development country), the global lender is gradually hardening its lending terms and raising interest rates.

The officials said the Power Grid Company of Bangladesh (PGCB) would borrow this fund for use in strengthening power gridlines in the eastern zone.

One of the MoF officials said the rate of interest on the loan will be EURIBOR plus 1.35 per cent wherein a fixed spread will also be charged.

Besides, a 0.25 per cent front-end fee and a 0.25 per cent commitment fee will be applicable. The maturity period of the $450 million loan will be 30 years, with only a four-year grace period, he said.

"Although Bangladesh borrowed $100 million from the SUF of the WB last year, its terms and conditions were much softer than they proposed the lending rate for the upcoming $450 million loan. As Bangladesh has already graduated as the lower MIC and is going to be non-LDC country soon, the Bank is likely to make its loans costlier for the former," said a senior MoF official.

The Bangladesh Bank borrowed the $100 million worth of funds from WB's SUF and $257 million from its concessional window -IDA-for the Investment Promotion and Financing Facility Project II.

The Washington-based lender does usually provide concessional loan for Bangladesh for implementing many development projects.

IDA soft loans carry only 0.75 per cent interest. Its maturity is 36 years with 6 years of grace period.

A senior government official said borrowing harder SUF loan could affect the repayment by the government if the implementing agency fails to execute the project with the money properly.

"Since the interest on the loan is not fixed, it could be increased anytime during the 30-year maturity period for repayment. Then Bangladesh may face trouble in loan repayment with higher interest rate," he said.

According to the lender's website, the rate of 6-month EURIBOR was hovering around nearly 0.30 per cent in last one week.

Economics professor of the University of Dhaka Dr MA Taslim said at this moment Bangladesh's entry into the "costly loan-borrowing club" could be an unwise decision as the public agencies are not capable of utilizing those funds properly.

"If the return from loan cannot be ensured in time, the country will be vulnerable in the case of repayment of the foreign credits. It will ultimately create pressure on the national budget, too," he told the FE.

The Washington-based lender in the last Financial Year (FY) 2016-17 introduced the SUF in Bangladesh for an investment-promotion and- financing-facility project.

The repayment conditions were comparatively softer than proposed for the next $450-million loan.

After reservation from the project-executing agency-Bangladesh Bank-the World Bank (WB) provided $100 million in loan from the SUF instead of preliminarily offered $300 million, a senior MoF official said.

Bangladesh Bank (BB) authorities expressed their reservations over the borrowing of the costly funds from WB's newly introduced SUF for its IPFF-II, fearing mismatch on the local financial market, he said.

Later, the WB provided $257 million from its concessional lending arm-the International Development Association (IDA)-and $100 million from the costly SUF for the above-mentioned project.

Meanwhile, an Economic Relations Division official said they had completed negotiations with the WB for the $450-million loan coming through the SUF.

The loan could be approved by the WB Board later this month before the signing of an agreement shortly to confirm its disbursement to Bangladesh, he added.

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