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WB loans get costlier, its terms too

Lender starts charging 2.0pc interest rate from this month

FHM Humayan Kabir | August 02, 2018 00:00:00

Bangladesh will no longer eligible for concessional loan from the World Bank as it has started lending at 2.0 per cent rate.

The Washington lender has made the higher rate effective from this month instead of 0.75 per cent, officials said on Monday.

Besides rate, the bank's other lending terms will be harder than the existing conditions, they said.

The bank has informed finance minister AMA Muhith through a letter on Sunday last about its new lending policy to be effective from July 1, 2018.

"We received the letter from the bank early this week. We will no more get loan at 0.75 per cent rate. Now, the bank will charge 2.0 per cent," secretary of the Economic Relations Division (ERD) Kazi Shofiqul Azam told the FE.

He said since Bangladesh has graduated as the "Gap country" from the concessional loan "IDA-only" status due to its higher per capita income threshold, the global lender will charge higher rate from now.

Currently, Bangladesh has been receiving soft loans from the bank's concessional lending arm-International Development Association (IDA).

A senior finance ministry official said that the bank had classified Bangladesh as the "Gap country" from July 01, this year but would lend funds in "blend" terms.

Blend term means the borrowing country will get loans at both concessional and harder terms.

This means Bangladesh will be getting loans from IDA at 0.75 per cent interest and the proposed rates varies from 2.0 to 6.0 per cent a year.

The official said the global lender has proposed making its loan harder as Bangladesh's GNI (Gross National Income) per capita income crosses the IDA's threshold for three consecutive years.

According to the bank, if a country's GNI per capita crosses operational threshold for three consecutive years, the borrower will be treated as the "Gap country" for securing bank funds.

Bangladesh's GNI per capita in the last three years was US$ 1,190, $ 1,330 and $ 1,430, which are higher than the bank's threshold.

Meanwhile, Bangladesh graduated as the lower-middle income country status, with its per capita GNI crossing the $1,046 in FY2016.

Mr Azam said while Bangladesh is still an IDA country, the nation has to repay the loans at 2.0 per cent rate due to its graduation from this financial year (FY) 2018-19.

As an IDA only country, Bangladesh has been getting loans paying 0.75 per cent service charges until the last fiscal year, which ended in June 30, he added.

The secretary said the repayment period for the bank loans has been reduced to 30 years from the current 38 years.

Besides, the grace period has been slashed to five years from the current six years period, he added.

In addition, Bangladesh will have to pay 0.25 per cent commitment fee for each of the loans from the global lender.

"We will borrow at SDR (Special Drawing Right) currency from the bank as its terms and conditions are less-stringent than those of the other currencies like USD, and Euro," said Mr Azam.

Another ERD official said if the country's per capita GNI increases in future years, Bangladesh will be graduated as the blend country under which the bank will offer loans from the International Bank for Reconstruction and Development, another lending window.

The country will have to borrow funds at more than 5.0 per cent with harder terms and conditions when it enters into the costlier lending arm, he said.

Meanwhile, a senior ERD official said the lender has already offered Bangladesh to borrow as a "blend" country.

"Since Bangladesh has sustained its GNI per capita income above the bank's threshold for three consecutive years, it has proposed lending at blend terms," said the official.

Among the South Asian nations, India and Sri Lanka have already been classified as "graduate countries" and Pakistan as the blend country.

The World Bank is Bangladesh's largest development partner as it helps the country reduce poverty.


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