Borrowing from ADB becomes costlier

FE Team | Published: July 29, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

FHM Humayan Kabir
The Manila-based donor agency Asian Development Bank (ADB) of late has become a hard-term lender for Bangladesh, official sources said.
The sources said that the volume of hard loans from the multilateral donor to Bangladesh has been rising sharply over the last few years.
ADB's Bangladesh office said since the availability of concessional credit from the Asian Development Fund (ADF) has become limited, the Bank has been extending loans to Bangladesh from its ordinary capital resources (OCR) to bridge the requirement gap of the latter.
According to ADB statistics, in the first six months of 2007, the Bank made commitments for providing US$500 million loan from its hard window --OCR --and $98.553 million from its soft window-ADF -- to Bangladesh.
The interest rate for hard-term loan (OCR) of the ADB varies from 5.5 to 6.5 per cent while that for soft-term loan (ADF) is 1.0 to 1.50 per cent. Besides, some other conditions like shorter grace period for loan repayment and commitment fees are also applicable in case of hard loan, the sources informed.
The official sources, however, said other multilateral and bilateral donors like World Bank, Japan, Department for International Development (DFID) are still providing soft loans and huge grants to Bangladesh. The rate of interest on their loans is less than 1.0 per cent.
The sources said the ADB used to provide ADF to the Bangladesh until 1999 except for 1973 when it made available OCR loan for the first time. In 1999 it again introduced the hard loan along with the ADF loan.
The flow of ADB credit to Bangladesh highlights a deviation from the past practice of giving aid money from the soft window. In recent years, there has been a considerable rise in the share of OCR in the total lending.
When asked about the sharp rise in OCR loan in recent years, ERD secretary Aminul Islam Bhuiyan told the FE that the ADB had provided a limited loan from its ADF. "But when we require more fund then the Bank provide us with its hard window facility," he said.
Hinting at inefficiency of different government authorities in project implementation, Bhuiyan said that the Bank provided ADF loan based on the performance of project implementation by the government.
Meanwhile, when asked about the sharp rise in OCR loan to Bangladesh, Head, Economics Unit of ADB Dhaka Office, Rezaul K. Khan, told the FE: "The concessional ADF is provided mainly for social infrastructure development like education, health, water supply and sanitation, agriculture, irrigation and so on.
The OCR loans are provided for revenue-generating large infrastructure development projects like power, gas and transports, which directly contribute to the growth and competitiveness. Since the availability of ADF resources is limited, the ADB is assisting Bangladesh with OCR facility (which has longer repayment period and less interest bearing than commercial loans)."
OCR is also being used to support private sector development in the absence of adequate private investments, including foreign direct investments, he opined.
Khan said: "ADB cannot increase ADF allocation to a country arbitrarily. The ADF loans are performance-based and it is also subject to the overall ADF resource envelope."
Favouring the OCR loan, the head of economics unit of ADB, quoting an ADB's debt sustainability study in Bangladesh, said that the OCR borrowing planned under ADB's Country Strategy and Programme for Bangladesh (2006-2010) would be sustainable.