Defence purchase loan at high rate

The government is going to take about $1 billion in defence purchase loan from Russia at an unusually high interest rate.
The deal will be signed between the two countries during Prime Minister Sheikh Hasina's three-day visit to Moscow where she flew to yesterday.
Officials in Dhaka having knowledge of the deal said the rate of interest on the $1b credit under the State Export Credit is 5 percent, which is double the rates on the recent loans taken from China and India.
Another agreement for $500 million loan to conduct a feasibility study on Rooppur Nuclear Power Plant will also be inked during Hasina's visit.
Moscow has offered this $500m for 10 years at 4.5 percent interest, but Dhaka has been bargaining for keeping it within 3 percent. It has five years' grace period, foreign ministry officials said.
A top finance ministry official said the ministry had reservations about the two deals, especially about the $1b defence purchase deal.
The official, speaking on condition of anonymity, said these two deals might hamper the ongoing $1 billion loan negotiation with the International Monetary Fund (IMF).
In case of any civil purchase, various government procedures are maintained, but defence deals are often done in non-transparent ways without any competition, the official added.
Another finance ministry official said loans for feasibility study were usually given as technical assistance in the form of grant or non-concessional loan. But the $500m Russian loan is "kind of a hard loan" considering its terms and conditions.
Under an agreement with the IMF, the government can take $1.5 billion hard loan a year. If this ceiling is crossed after taking the Russian loan, the government might face difficulties in securing the IMF loan.
The high interest rate of the loan would also put pressure on the foreign reserve.
Details of the terms and conditions of the loan could not be known. Asked by journalists on Sunday, Foreign Minister Dipu Moni said the Economic Relations Division would speak on the matter, but nobody agreed to comment when The Daily Star contacted a number of officials of the Division.
Asked if the $500m credit was hard loan or soft loan, Dipu Moni said: “Neither of them."
Earlier on January 9, Finance Minister AMA Muhith also refused to elaborate on the terms and conditions. He said he would comment only after the deals were done.
With the $1b defence purchase loan, the government will buy seven types of weapons for the army and four types of weapons for the air force, reports Bangla daily Prothom Alo.
The weapons to be purchased for the army are anti-tank missile Metis-M-1 and Kornet-E; armoured vehicles BTR-80 and BTR-80-K; automatic grenade launcher AGS-30; PP-91 for ferrying armoured vehicles and tanks in the river ways; and MTU-90.
The air force, on the other hand, will get Yak-130 training fighter plane, MI-171 SH helicopters capable of transporting goods for the air force, Gama-DE/Gama C1E radar and Casta-2E2 radar.