New WB loans for infrastructure in the offing

Bangladesh is set to take loans under a new scheme of the World Bank that carries high interest rate, to meet the huge public and private sector investment demand.

The Washington-based multilateral lender formed a new fund named "Scale-Up Facility (SUP)" in March this year and Bangladesh can take loans from it at high interest rate in addition to normal concessional credit.

Since Bangladesh is a low-income country, it only gets loans from International Development Association, the arm of the World Bank Group that hands out loans and grants to the world's poorest developing countries.

The service charge on IDA loan is 0.75 percent and the repayment period is 38 years including six years' grace period.

But now, the Washington-based lender has proposed the government to take loans from SUP in addition to the loans it gets from the IDA.

Subsequently, the government has sought $300 million from the SUP for three projects, including one for the power sector.

The rate of interest on the new loan will be fixed between 3.74 percent and 4.16 percent, with repayment period being 24-30 years including 5-9 years' grace period.

In addition, there would be 0.25 percent front-end fee and 0.25 percent commitment charge.

The government has already decided that they will take loans from SUP as Bangladesh has deficiency of resources compared to the investment need in the public and private sectors, said a finance ministry official.

Even though it is a semi-commercial loan, it is more tolerable than the international market rate, he said. 

Bangladesh borrows the second highest amount from the Asian Development Bank after the WB.

The ADB provides two types of loans to Bangladesh: one from the Asian Development Fund that carries a 2 percent interest rate and another from the Ordinary Capital Resource, whose interest rate is LIBOR-based.

The rate of interest on this loan is up to 3 percent and the highest average repayment period is 20 years.

Among the bilateral donors, Bangladesh is going to take a big amount of loan from China in the near future.

The interest rate on the Chinese loan is 2 percent. In addition, 0.4 percent other charges are applicable and the repayment period is 20 years including five years' grace period. 

However, in case of Chinese soft loan, the government of that country selects bidders or suppliers. There is no scope for competitive bidding.

The SUP would be a good opportunity for Bangladesh taking into consideration the rate of interest, terms and conditions, said Sadiq Ahmed, vice-chairman of Policy Research Institute.

"Whether Bangladesh will take this opportunity depends on the country's requirement."

Ahmed said the loans should be taken for projects that have greater economic rates of return as it is a type of semi-commercial loan.

The loan will not be viable if the economic return is not more than its borrowing cost. The loans may be taken for infrastructure projects like power, roads and bridges, he said.

The finance ministry official said they have already sent some proposals to the WB for loans, of which one is for the Investment Promotion and Financing Facility project run under Bangladesh Bank. Loans are already being given to different infrastructure projects in the private sector under the scheme.

The government has sought an additional $100 million from the WB for the fund.  Ahmed said the government can take loans for such projects as the fund will boost the economy through the private sector.

But the government should not bear any risk in the loans given to the private sector and the rate of interest on the loan will not be subsidised, he added.