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The government is taking a three billion dollar loan under tough conditions

The government is taking a three billion dollar loan under tough conditions
The government is taking a three billion dollar loan under tough conditions

The government is taking a loan of about 298 crore (about 3 billion) US dollars for several important projects, including the purchase of fuel and meeting the deficit budget. This loan is being taken to reduce pressure on reserves. All loans are rigid i.e. with strict terms. Out of this, 1.4 billion dollars will be spent only for the purchase of fuel oil. Finance Minister AHM Mustafa Kamal, chairman of the Standing Committee on Hard Credit (SCNCL), has approved nine proposals for these short and long-term loans. After completing the legal process, the loan agreement has already been signed with the related development agencies. News from related sources.

According to the normal rules, before signing the loan agreement with the development agency, the SCNCL meeting has to approve the proposal. But these loans were not presented in the SCNCL meeting due to time constraints and urgency. However, the finance minister has approved the loan proposal under the condition of informed and sub-optimal approval in the meeting of the standing committee regarding rigid loans to be held in the future.

According to sources, 250 million dollars in social protection, 280 million dollars in infrastructure development projects in public private partnership, 100 million dollars in Greater Dhaka Sustainable Urban Transport project, 800 million dollars as budget support, 1400 million dollars in import of energy products, 40 million dollars in Chittagong-Cox’s Bazar railway project. Crores of dollars, 110 million dollars for Yamuna river management and 40 million dollars for water source management project. In the last seven months from November 14 to June 12, 2022, nine proposals for rigid loans have been approved. However, the medium-term strategy paper prepared by the government for foreign borrowing calls for more borrowing from flexible sources, i.e. at low interest on easy terms.

A statistical analysis by the Economic Relations Department (ERD) shows that low-interest foreign loans are available now, and will be even less in the coming days. But the interest rate of the new loan is market based. In such a context, economists have advised to be strategic to get maximum profit by taking advantage of loans.

When asked to know, former senior finance secretary Mahbub Ahmed told Yugantar that fuel is called the blood of the economy. There is no problem if fuel oil is bought with rigid credit. Because at the moment there is no alternative way. Loans must be made. However, the country’s record in foreign debt repayment is good. He also said, even then, you have to understand in taking a loan. Now the dollar crisis is going on. If fuel is imported on credit, the pressure on reserves will decrease.

Zahid Hossain, the former chief economist of World Bank’s Dhaka office, told Jugantar that the loan for buying fuel should be supply credit. However, in this case, if rigid loans are not taken, the reserve would be broken and there would be pressure to meet import expenses. It could have caused further crisis in the economy. Although this loan is difficult, it will help to reduce the pressure on reserves. But in the future, if you can’t pay properly, the pressure will increase. In this case, the pressure to pay the previous loan installments will increase in 2027. These debts will then add up. He also said that at this time there is no alternative way to meet the dollar deficit. However, foreign exchange earnings that do not come into the country such as exports of 55 billion last year are 46 billion dollars. Remittances are lower than expected. If these are increased, it will be possible to avoid difficult and high interest loans. For that there are some financial policies that need to be fixed. Especially the monetary policy should be market based.

According to sources, a committee comprising representatives of ERD, Energy and Mineral Resources Department, BPC, Finance Department and Bangladesh Bank held a meeting with the International Islamic Trade Finance Corporation (ITFC) team. The meeting was held on March 21 mainly for the import of energy products for the financial year 2023-24. In that meeting, both sides agreed on taking a loan of 140 million USD from ITFC. This loan with rigid terms has a tenure of 6 months.

Sources also said that a loan of 800 million US dollars has been taken as budget support. In this, a loan of 40 million dollars was taken from the Asian Development Bank (ADB) with the aim of providing services to the people by stocking the financial system of the government. This funding will implement the new Income Tax Code, the Government Procurement Authority Act and the Secure Transaction Procedures Act. The grace period of this loan is three years for a tenure of 15 years. Out of this, the grant share is 81.81 percent. Besides, 400 million dollars have been taken from the Asian Infrastructure Bank (AIIB). In the context of taking this loan, it is said that Covid-19. The country’s economy is under pressure as a result of the Russia-Ukraine war and the subsequent ongoing economic recession. Added to this is the rise in commodity prices, the increase in the price of imported goods and the devaluation of the rupee against the US dollar. This money has been taken as budget support to deal with this pressure.

Sources also said that a separate loan of Rs 25 crore from AIIB is for social security, financial inclusion of the underprivileged and strengthening response systems to social and health needs across the life cycle. Besides, $100 million is being taken from ADB for the construction of 20 km bus rapid transit infrastructure from Gazipur to Hazrat Shahjalal International Airport. The tenure of this loan is 20 years. And USD 400 million is being taken from ADP for the single line dual gauge track construction project from Dohazari to Ramu to Cox’s Bazar and from Ramu to Gundum near Myanmar.

Currently, interest rates on low-interest or flexible loans range from a maximum of 2 percent. And in the case of market-based (floating rate) loans, interest is determined by calculating SOFOR (The Secured Overnight Financing Rate) and other fees and charges along with it. ERD’s analysis says that if the current trend continues, the share of market-based loans will be 42.4 percent in 2026. In 2031 it will be 55.7 percent of the total debt and in 2041 it may rise to 82 percent. On the other hand, in 2026, the opportunity for cheap loans will decrease to 46 percent. It will further decrease to 25 percent in 2031 and if Bangladesh achieves the target of reaching the rank of developed country by 2041 by maintaining the current progress, it may decrease to 4 percent.

The article is in Bengali

Tags: government billion dollar loan tough conditions


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