ADB opts for $800m hard-term, $450m soft loans this year

FE Team | Published: May 15, 2010 00:00:00 | Updated: February 01, 2018 00:00:00

FHM Humayan Kabir
The Asian Development Bank (ADB) has devised a costly lending progarmme for Bangladesh this year as it has increased its hard-term loans up from the softer ones in the revised aid scheme, officials said.
Finance ministry officials have said the Manila-based lender has prepared a lending programme for the current year of 2010, in which it proposed US$ 800 million hard-term loan and $450 million soft loans for different development projects.
The ADB has recently finalised the lending programme upon discussion with the government, where it offered more loans from its ordinary capital resources (OCR), an expensive lending window, a senior economic relations divison (ERD) official told the FE.
It has revised its earlier three-year lending programme and proposed to bankroll $1.25 billion loans including $800 million hard-loan from OCR for the Bangladesh government.
In last year 2009, the ADB has confirmed $1.03 billion total loan, where it offered $600 million from the hard window OCR, and the rest from the soft window Asian Development Fund (ADF).
The Manila-based lender has two loan disbursement windows -- OCR, that offers hard loan, the ADF, that offers soft-term loan to the borrowing countries.
The service charges for the OCR loan are higher and repayment period is also shorter.
"In recent years, loan from ADB has started becoming more expensive day by day compared to the past. It will hurt the government during loan repayment period," the senior ERD official said.
When the government goes for more borrowing from the hard loan package, it will affect the country's financial sector and raise the debt burden, he added.
He said: "Borrowing of hard loans by the poor countries like Bangladesh is not viable for the economy. The countries like India and China, which have huge foreign exchange reserves, can borrow more from the OCR."
An ADB official said as Bangladesh needs more investments in infrastructure development, the bank cannot provide full funds from its soft window, ADF.
"Bangladesh's economic indicators, especially the foreign exchange reserve, are showing positive trends which make it resilient for borrowing from the OCR along with borrowing from the ADF," he said requesting anonymity.
Former finance and planning adviser Mirza Azizul Islam said when the country's hard loan increases, the fiscal pressure will also increase.
"The government can borrow some money from the OCR, but it should not cross the limit of the economy's financial backbone," he added.
Mr Islam said: "Bangladesh's reserve has increased due to a fall in import. Besides, the export and remittance growths are negative. So, it does not mean that the higher reserve shows a positive indicator for the economy."
The government should negotiate cautiously with the ADB so that it can ensure soft-loan, which would not push the economy into pressure, he added.
In 2009, the government borrowed $500 million credit from the ADB. Bangladesh has to repay it in only five years with a three-year grace period.
The interest rate for the loan would be nearly four per cent, which is much higher than the lender's any previous loan to Bangladesh government, an ERD official said.
The Manila-based multilateral lender usually gives long-term aid with some 2.5 per cent interest rate, for which the repayment period is offered for 32 years with more than eight years' grace period.