Bangladesh may accept a proposed China buyer's credit in RMB, instead of the pricey US dollar, on softer terms than quoted for financing a project, including lowering the lending rate below 1.0 per cent.
In response to Chinese proposal for disbursement of its loan in its currency, Bangladesh negotiators also wanted loan-maturity period extended to 30 years, with a grace period of at least 6 years.
The negotiations on the loan in RMB started last year when China EXIM Bank proposed to disburse loan for 'Establishing Digital Connectivity (EDC)' project in the Chinese currency instead of the US dollar.
The EXIM Bank proposal states: "In view of the liquidity shortage and high-rising financing cost of US dollar in global market, to achieve sustainable cooperation, the Bank strongly suggests your side to consider RMB rather than USD as the financing currency for EDC project."
It also offers 2.0-percent interest rate for funding in RMB with 5 years' grace period and 20-year maturity time.
The Chinese side said the interest rate on loan under preferential buyer's credit (PBC) projects like the EDC is higher than 2.0 per cent but if Bangladesh would agree to receive it in RMB, the rate would be much lower.
However, the Bangladesh side across the table wanted 'more concessional terms'.
In a recent negotiation the Bangladesh side said they had sought opinion from 'relevant authorities within the Government of Bangladesh' and 'the Central Bank of Bangladesh suggested that the government might consider availing the PBC loan in RMB for the EDC project in 'more concessional terms'.
Bangladesh said that the interest rate on the loan should be lower, or at least on par with that offered by other development partners.
"The Finance Division has recommended the use of RMB instead of USD for the EDC project, provided that the interest rate remains below 1.0 per cent, with more concessional terms and conditions to be reasonably determined by the ERD," said one of the sources familiar with the negotiations.
The negotiators from Bangladesh finally proposed a reduction in the interest rate to below 1.0 per cent and an extension of the loan maturity up to 30 years, with a grace period of at least 6 years.
Highlighting the importance of the TK 58.83 billion EDC project, they said the EDC project holds paramount importance for both the governments of China and Bangladesh as China provided significant assistance and contributions towards expanding digital networks through projects such as "IV Tier Data Centre," "Info-Sarker II," "Info-Sarker III," and "Modernization of Telecommunications Network".
In a communiqué to the EXIM Bank Bangladesh the side also mentioned that China's involvement would play a pivotal role in the development of a 'Smart Bangladesh' envisioned by the Bangladesh prime minister.
The lender was told that this initiative would enhance the competitiveness of Chinese loans compared to other bilateral development partners, which would also reflect the friendly relations between China and Bangladesh, sources said.
Chinese officials were also told that "the friendly gesture in determining the terms and conditions for the EDC project for using Chinese RMB will give us a better edge in ensuring the sustainability of China-funded projects and will foster a long-term partnership" in the realm of economic development.
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