The World Bank has finally succeeded in persuading the government to take costly credits from the former's 'Scale-up Facility' fund and the Bangladesh Bank (BB) is going to be one of the recipients, officials said Saturday.
Bangladesh recently agreed to borrow the high interest fund after the Washington-based lender had series of meetings with the government policymakers to make its case on lending from the Scale-up Facility (SUF).
The lender recently selected four projects, including the central bank's 'investment promotion and financing facility project-II (IPFF-II), to provide some US$350 million, said a senior Ministry of Finance (MoF) official.
Three other projects are from power and IT sectors.
According to the WB, it would send a "preparation mission" for the IPFF-II project in Bangladesh where the loan modalities and different issues of the projects would be discussed.
The MoF official said, "The terms and conditions of the fresh loan will be harder as its interest rate is nearly 4.0 per cent with a shorter repayment period."
Currently, the WB provides Bangladesh concessional credits from its softer window — the International Development Association (IDA) — which carries only 0.75 per cent interest with 36-year maturity.
The MoF official said the IPFF-II project was earlier prepared expecting concessional loan from the WB's soft window — the IDA.
The Economic Relations Division (ERD) had expressed its reservations over the WB fresh loan for its higher rate of interest as Bangladesh is an eligible country to get the lender's concessional funds from the IDA.
A Bangladesh Bank (BB) official said if the government borrowed from the WB at the higher rate of interest, there would be a mismatch between the ongoing borrowing and lending rates on the local market.
"The higher rate for borrowing from the WB would ultimately enhance the cost of fund which would carry a higher rate of interest for lending to the project beneficiaries-the private enterprises," he told the FE, requesting anonymity.
Under the 1st phase of the IPFF, BB lends the WB funds to the local commercial banks and financial institutions at nearly 6.0 per cent rate.
The financial institutions and banks then lend the money to the private banks at nearly 8.0-9.0 per cent rate.
In 2007, the central bank started the IPFF project where the WB provided $307 million worth of loan in two phases from its concessional wing.
The MoF official, without naming any name, said they had been forced to allow the borrowing of the non-concessional credit from the WB due to pressure from some policymakers who want to implement their projects even with costly credits.
Finance Minister AMA Muhith recently 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.
Another MoF official said since the WB has failed to lend its 'stuck-up' $3.9 billion SUF fund due to its harder terms and conditions to its member- countries, it had been persuading Bangladesh government to take it.
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 top ERD official said if Bangladesh took the loans from the scale-up facility, the WB would encourage lending 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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Source: The Financial Express