Govt opts for costlier WB loans

FT ONLINE

The government is going to take out US$1.87 billion in costlier loans from the World Bank (WB) to implement six projects, officials said.

The decision on securing the hard-term loans from the bank's Scale-up Facility came after it borrowed up to the hilt from the bank's low-cost lending package, they said.

The interest rate of the hard-term loan is about 3.0 percent. In addition, the bank will charge 0.25 percent in commitment fees while 0.25 percent in upfront fees.

The repayment period of the loan will be 30 years with a nine-year grace period.

On the other hand, borrowing from the International Development Association carries a 2.0 percent interest rate and the maturity period of the loan is 36 years with a six-year grace period.

"We've already borrowed almost entire fund of $4.2 billion within the first two years of the IDA-18, though we've one year to go," said an Economic Relations Division official.

Under the IDA-18 loan package, the Washington-based lender has offered $4.2 billion concessional loans for Bangladesh from the fiscal year 2017-18 through fiscal 2020.

Since the concessional loan package has been utilised, the ERD is now trying to explore other options for getting funds from the global lender, additional secretary of the division Zahidul Haque said.

He said the bank has assured the government of financing six development projects from its high interesting-bearing fund.

"We have no option other than this," Mr. Haque said.

Another ERD official said the terms and conditions for borrowing the scale-up facility are much harder than those of the soft-lending arm.

According to the ERD's calculation, the grant-element, defined as the difference between the loan's face value and the sum of the discounted future debt-service payments by the borrower, of the scale-up loan is as high as 28 percent, which is defined as non-concessional lending.

The government considers loans to be non-concessional loans when the grant-element is between 25 percent and 35 percent.

According to the ERD, the WB has agreed to provide some $500 million funds for the Bangladesh private investment and digital entrepreneurship project, $175 million for the Western economic corridor and regional enhancement project,

$300 million for Bangladesh integrated digital government project, $120 million for Climate-smart agricultural water management project, $475 million for Dhaka public transport improvement project, and $300 million for Dhaka sanitation improvement project from its scale-up facility.

"We will not take all the $1.87 billion loans for six projects within this fiscal. We will take that one after another over the next couple of years," he added.

Earlier, the government had borrowed $100 million for an investment promotion project and $500 million for the power transmission system improvement from the scale-up arm.