Forex reserves took no hit from Padma Bridge
In 2012, when the government decided to construct the Padma Bridge using its own resources, many economists feared that Bangladesh's foreign currency reserves would take a big hit.
A decade later, things are completely different.
Prime Minister Sheikh Hasina yesterday inaugurated the much-talked bridge and the country's foreign exchange reserves have grown by four times to $41 billion from a decade before.
Since 2013, a state lender has been meeting the project's foreign currency requirements from its own earnings. It did not have to buy any single foreign currency from the reserves of the Bangladesh Bank to finance one of the largest infrastructure projects in the country's history.
The state lender, Agrani Bank Ltd, is the sole supplier of foreign currencies for the project and made payments of $1.48 billion to international contractors and consultancy firms as of May this year.
"We have been able to make the foreign currency payment from our own earnings, without purchasing any penny from the Bangladesh Bank's reserves," said Zaid Bakht, chairman of Agrani Bank.
"We have even sold the greenback three cents below the market rates. This has reduced Agrani Bank's profit but we could contribute to the construction of the bridge by sacrificing the profit," he told The Daily Star.
Bakht, a former research director of the Bangladesh Institute of Development Studies, has been working as the chairman of the bank since November 2014. The construction of the Padma Bridge also began in the same month.
The cost of the 6.15km bridge is Tk 30,193 crore, or $3.56 billion. The government has spent Tk 27,592 crore so far from the coffer, which accounted for 91 per cent of the cost.
As per the deal, Agrani Bank has to make payments of $2.4 billion in foreign currencies, according to the Bangladesh Bridges Division, the implementing agency of the project.
This means the bank has to clear payments worth $920 million in the coming days, and Bakht is confident that the state-owned lender would be able to make the payments from its own pocket on time.
"The payments are made in phases," said the economist.
The Padma Bridge project has been implemented with the country's own funds after the World Bank and other international lenders cancelled financing in 2011 over corruption allegations, which the government denied.
Allegations against government and project officials were later dismissed by the Anti-Corruption Commission of Bangladesh and a Dhaka court. A Canadian court also found no proof of graft conspiracy involving the project.
But buoyed by rising foreign exchange reserves and export earnings, the government decided to go ahead with the project on its own resources. This was the time when the question of making payments to international contractors and consultancy firms in foreign currencies came to the fore.
In 2012, the bank informed the government about its ability to supply foreign currencies. The Bridges Division opened an account in the Gulshan branch of the lender on August 27 of the same year.
A meeting chaired by the Bangladesh Bank governor was held on February 3, 2014, to decide how Agrani Bank will supply the foreign currency.
It was agreed in the meeting that if there was still any shortfall, the BB would sell foreign currencies to Agrani Bank.
In order to assure foreign contractors and consultancy firms, Agrani Bank issued a comfort letter three days later.
The bank emphasised exports and remittances, the two top sources of foreign currencies for Bangladesh, to meet the need for foreign currencies.
"As a result, we did not face any hurdle in supplying the foreign currencies," said Bakht.
He says the bridge will work as a game-changer for the southwestern region in particular and Bangladesh in general.
"The bridge will not be used to cross the river alone. There will be economic benefits as well."
The government has already framed a comprehensive development plan for industrialisation in the southwestern region where the work to establish 13 economic zones has already begun and the process to construct some power plants is underway.
"The bridge will bring Mongla and Payra ports closer to Dhaka. Apart from that, the possibility of regional connectivity is much better," said Bakht.
As a lender to the Padma Bridge from its own coffer, Agrani Bank's confidence level has received a boost, Bakht said.
"In future, Agrani Bank will play a key role in major infrastructure development in Bangladesh."