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The Asian Development Bank (ADB) is set to provide US$300 million to state-run Bangladesh Infrastructure Finance Fund Limited (BIFFL) to catalyse long-term infrastructure project finance.
The BIFFL will borrow the fund during 2018-2022 period, finance ministry officials said.
The ADB, in a note, said Bangladesh faces an infrastructure financing gap of US$9.0 billion a year.
An increased number of large infrastructure projects are being developed by different ministries and the Public Private Partnership Authority (PPPA), it said.
Some of these projects are at advanced stage and would require financing during fiscal year (FY) 2018-19.
The BIFFL wants to provide funds for these projects after taking out loans from the Asian lender.
Presently, the BIFFL has significant financing constraints to lend to its pipeline projects from FY 2018-19 and beyond.
The BIFFL is funded mostly by government equity and contribution. It has no access to long-term debt.
"The ADB assistance to provide long-term funds could help BIFFL catalyse private sector finance by crowding in greater commercial lending from other financial institutions through loan syndication or other parallel finances," the ADB noted.
This provides the most effective way to help Bangladesh meet the $9.0 billion infrastructure funding gap.
The ADB fielded a mission in May this year, which indicated that its funding to the BIFFL would depend mostly on the readiness of eligible projects.
In the past, the BIFFL partially funded Dhaka elevated Expressway and Dhaka Bypass.
The BIFFL observed that in the absence of public involvement through a public sector infrastructure lending intermediary or through financing of public-private partnership projects, it is "very difficult to attract private investment in the infrastructure space to meet financing gap."
Private sector businesses have long been requesting the government to scale up infrastructure investment to facilitate industrialisation in the country.
President of the Dhaka Chamber of Commerce and Industry (DCCI) Abul Kasem Khan, in a recent press meet, urged the government to raise infrastructure investment to nearly 6.0 per cent of gross domestic product (GDP).
He requested the government to develop infrastructure through PPP.