BRICKS bank to help Bangladesh amass fund for development goals

Bangladesh had shown interest in joining the New Development Bank, BRICS Bank, when it was coming into being in 2014 only for it to lean towards the China-sponsored Asian Infrastructure Investment Bank for funds.

Abul Maal Abdul Muhith, then the finance minister, had told bdnews24.com that the government had not been thinking much about BRICS Bank due to its sluggishness at the time and would consider joining it once it picked up speed.

Six years on, Bangladesh has agreed to be a part of the BRICS Bank initiative at a time when the bank has amassed $100 billion with an initial capital of $50 billion.

Analysts see it as a positive move. They believe the multinational bank would facilitate infrastructure loans minus the authoritative glare of the United States or European nations.

But they do not see a big difference between the NDB and other multinational development banks in terms of conditions for loans and banking operations.

BRICS is a joint initiative undertaken by Brazil, Russia, India, China and South Africa. The Agreement on the New Development Bank or NDB entered into force in July 2015.

On Dec 17 this year, India’s Prime Minister Narendra Modi invited his Bangladeshi counterpart Sheikh Hasina to join the bank.

Later that day, Foreign Minister AK Abdul Momen and Vikram Doraiswami, the Indian high commissioner in Dhaka, announced that Hasina had responded positively to the invitation.

As part of its expansion efforts, NDB has finalised its membership policy and begun the process to draft in new members.

After adopting a policy where any members of the United Nations can apply for the NDB membership, initially, each member state would be required to nominate two countries into the bank, The Economic Times reported.

Expansion of membership in the bank was also raised in the virtual BRICS Summit held on Nov 17.

“We support the NDB membership expansion process based on relevant decisions by the NDB Board of Governors. This will strengthen the NDB's role as a global development finance institution and further contribute to the mobilisation of resources for infrastructure and sustainable development projects in Bank's member states,” the declaration of the summit read.

“The process of expansion should be gradual and balanced in terms of geographic representation in its membership as well as supportive of the NDB's goals of attaining the highest possible credit rating and institutional development.

“We welcome the launch of the formal negotiations with potential candidates based on these principles and work towards the timely expansion of NDB's membership,” it added.

In the 2017 summit of the bloc, the NDB Board of Governors created a list of countries to propose membership of the bank.

According to the terms and references of membership, new members would be required to appoint a governor and an alternate governor. Additionally, directors would be required to select their delegates, but the total number of directors would not exceed 10.

During the summit in November, NDB President Marcos Troyjo highlighted the bank’s operations over the past five years.

“In mere five years, we have accomplished what peer institutions took decades to achieve,” said Troyjo. “We are talking about 65 projects totalling $21 billion. By the end of this year, we expect approvals to reach $26 billion,” he said.

The NDB has earned AA-plus ratings from American credit rating agencies Fitch and Standard & Poor's. It has obtained AAA ratings from Japan Credit Rating Agency and Analytical Credit Rating Agency.

These ratings put the NDB at a favourable position in raising funds at a competitive rate, said Zahid Hussain, former lead economist of the World Bank’s Dhaka office.

Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue, sees three key benefits for Bangladesh of joining the BRICS Bank.

“It shows our economic viability - that’s number one. Secondly, we can be involved in its policymaking process. And thirdly, we will have an upper hand getting loans if we are involved with it. I think it is a positive development,” he told bdnews24.com.

The World Bank, the Asian Development Bank, Japan International Cooperation Agency and others are supporting the government with funds to achieve the Sustainable Development Goals, for which the country needs $1.0 trillion in 15 years, or 20 per cent of the GDP annually.

But the government needs more as all the funds sanctioned by the global and regional lenders are far less than the target required to achieve the SDGs.

The NDB can open a new window of opportunity to fund the long-term projects that are related to achieving the goals, said Zahid.

On the ratings, Mustafizur said, “I saw that [NDB’s] rating was AA-plus and it has a good relationship with AIIB. Taking that into account, we will get an advantage in receiving infrastructure loans.”

The NDB member countries account for 42 per cent of the world's population and contribute more than 20 per cent of the global GDP.

During its establishment, these were factored in and it was stated that NDB could become an alternative to the World Bank and International Monetary Fund in financing infrastructural development and in undertaking other projects in emerging economies.

Mustafizur said there is roughly no difference between the global lenders and the BRICS Bank. “Many initially thought that it (BRICS Bank) would be more stringent in terms of oversight, rules, etc…, but that was not the case. It is more focused on infrastructure and developing countries. I don’t see too much difference in that view.”

“Again, America and Europe won’t boss anyone here. Taking that into account, its political economy is headed in the right direction,” he added.

Zahid concurred with Mustafizur’s view that there was no much difference between the NDB and the World Bank.  

The NDB initially said it would be an alternative to the World Bank and IMF where the developing economies do not have a voice, but ultimately the BRICS Bank’s governance structure will allow the five founding members to play the dominant roles, Zahid said.

“And they say that their shares in the bank must remain over 55 per cent. So their governance structure will be similar to the World Bank and IMF,” he said.

The process of Bangladesh becoming a member of the NDB is not clear yet, according to the former World Bank economist.

The founding members of the NDB have bought a total of 500,000 shares out of 1.0 million at $100,000 each. “Now the question is -- how many shares shall I have to buy to become a member?”

“And it has been stipulated that no one other than the founding members will be able to hold more than 7.0 per cent of the bank. It means you can’t buy more than 70 shares. Shall anyone become a member after buying only one share? It’s not clear yet.” 

Zahid said the interest rate on loans from the NDB will not be fixed and will change every six months. The ultimate interest rate will be determined by the fluctuating US dollar Libor or the euro Libor, plus a margin of at least 1.0 per cent.

“And there are commitment fees and risk premium charges for some countries.”

The NDB is also investing in local currencies by issuing bonds, which Zahid sees as a positive side because the creditor, not the borrower, will be liable for the changes in the exchange rates.

For the loans taken in dollars, the borrower pays extra during repayments if the greenback strengthens.

Indian High Commissioner Doraiswami said the discussion on Bangladesh’s induction process as a member into the bank would soon begin.

“We have invited Bangladesh to become a partner of the bank. It means Bangladesh is being provided with the opportunity to get loans on easy terms and express their views,” Doraiswami said last Thursday.

Membership of the bank would facilitate receiving loans for bigger projects, Foreign Minister Momen said.

“Our country will need more funds because we have undertaken many projects, including big ones,” he added.