World Bank pushes for $500m costly credit

BD project-executing agencies demur, favour concessional loans

FHM Humayan Kabir | Published: August 08, 2017 08:35:44 | Updated: October 24, 2017 12:45:41

The World Bank has offered Bangladesh US$500 million worth of costly credits from its 'Scale-up Facility Fund', alongside its concessional loans, though project- executing agencies demur, sources said.

Government officials said the Washington-based lender in the last Financial Year (FY) 2016-17 introduced the scale-up facility fund (SUF) for an investment-promotion and- financing-facility project in Bangladesh.

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

The Bangladesh Bank (BB) expressed its reservations over the borrowing of the costly funds from the WB's newly introduced SUF for its 'Investment Promotion and Financing Facility Project-II (IPFF-II)' in fear of mismatch on the domestic financial market, he said.

Later, the WB provided $200 million in loan from its concessional arm-the International Development Association (IDA)-and $100 million from the costly SUF for the above-mentioned project.

The MoF official said the WB recently recommended that Bangladesh borrow $500 million or more from its SUF as it has limited IDA funds for lending to the country.

"Since the WB is repeatedly pursuing us to borrow from the SUF, we have already decided to take the money for power-grid-development works of the Power Grid Company of Bangladesh (PGCB)," he added.

However, the PGCB has informed the MoF that it is not willing to borrow the entire sum of $500 million from the SUF due to the costly options rather wants the loan from the IDA, the MoF official told the FE,
requesting anonymity.

According to the MoF official, the terms and conditions of the SUF loan will be harder as its interest rate is nearly 4.0 per cent with a shorter repayment period.

Currently, the global lender provides Bangladesh concessional loans from its softer window-the IDA-which carries only 0.75 per cent interest with a 36-year maturity.

A senior ERD official said since Bangladesh needs huge investments, it could take the credits from the SUF for those development works which promise fair returns.

"Moreover, we have no option but to borrow the loan as the WB can't provide more than its certain amount of concessional loan from Bangladesh in the IDA-18 package," he added.

Officials said Bangladesh in the last FY2017 agreed to borrow the costly loan as the Washington-based lender having series of meetings with the government policymakers to provide the credit from its $3.9 billion worth of additional capital called-Scale-up Facility (SUF).

Another MoF official said they had been compelled to allow borrowing the non-concessional credits from the WB as some policymakers want to implement their projects even with the costly credits.

Finance Minister AMA Muhith had asked the ERD to process the loan from the newly offered WB fund if any public agency seeks the money for implementing their projects with potential better returns, ministry officials said.

He said since the WB had failed to lend its 'stuck-up' $3.9-billion SUF fund due to its harder terms and conditions to its member-countries, it has been persuading Bangladesh government to borrow.

Under the IDA-17 package, the WB has kept aside some $890 million worth of funds from the SUF for the South Asian nations, including Pakistan, Sri Lanka, Nepal, Bhutan, Afghanistan and Bangladesh.

A senior ERD official thinks that if Bangladesh took the loans from the SUF, the WB would feel encouraged to lend money from its other hard-term windows-the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC) -- in the near future.

"So if we can continue with the concessional loan from the soft window of the WB, it will be better for the struggling infrastructure and social-sector development of Bangladesh," he said.

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