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WB funds for bankrolling BD dev becoming costlier

Status change from LDC entails a cost

FHM Humayan Kabir | September 17, 2017 00:00:00

Status change entails a cost as the World Bank is going to make lending to Bangladesh much costlier, with interest rates rising above 2.0 per cent, for the country's economic graduation.

Officials said Saturday the multilateral development financier would raise the cost of funds from next financial year (FY) 2018-19, after a long time of concessional assistance for bankrolling Bangladesh's development recipe.

A proposal is learnt to have been made to Bangladesh to enter into the WB's costliest lending arm, IBRD (International Bank for Reconstruction and Development), to borrow funds, if necessary.

The Washington-based lender has proposed 2.0 to 2.62 per cent interest rates and stringent repayment conditions for Bangladesh from the next fiscal, raising the interest from the current level of 0.75 per cent, the officials said.

The repayment period of the loan will also be reduced to 30 years and the grace period to five years from the existing 36 years and six years respectively.

Currently, Bangladesh has been receiving soft loans from WB's concessional lending arm-the International Development Association (IDA)--as an "IDA-only" country.

The sources said the WB is now going to classify Bangladesh as "Gap country" from next FY2019 and lend funds on "Blend terms".

"Since Bangladesh's economy upgraded two years back, the Bank is going to make its lending a little bit costlier for Bangladesh," said a senior Ministry of Finance (MoF) official.

He said the Bank has proposed to make its loan harder as Bangladesh's GNI (Gross National Income) per capita crosses the IDA operational threshold for two consecutive years.

According to the Washington-based development financier, if a country's GNI per capita crosses operational threshold for two consecutive years, the borrower will be treated as "Gap" country for receiving funds.

Bangladesh for the last two consecutive years had maintained higher GNI per head than the operational threshold of the WB.

As per the Bank, Bangladesh's GNI per capita in last two years was maintained higher at US$1,190 and $1,330 from the lender's operational threshold of $1,185 and $1,165.

Meanwhile, Bangladesh graduated to a lower-middle-income country with the gross per-capita GNI crossing $1,046 in FY2016.

"Since Bangladesh has sustained its GNI per capita above the WB-threshold level for two consecutive years, it has proposed to lend at blend terms," said another MoF official.

"Blend" terms means the borrowing country will get loans at both concessional and harder terms. It means Bangladesh will be getting loans from the IDA at 0.75 per cent interest as well as at the proposed rates that vary from 2.0 to 2.62 per cent per annum.

According to the new WB conditions, Bangladesh will have to repay at 2.0 per cent interest if it borrows on SDR (Special Drawing Right) currency and at 2.62 per cent on the USD currency.

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

Distinguished fellow of the Centre for Policy Dialogue (CPD) Prof Mustafizur Rahman told the FE that following the proposed harder-term loans from the WB, the government should calculate the future debt burden to be borne by the country.

Bangladesh will need to take preparation for the best use of the proposed comparatively costly loans, he added.

"Currently, the country's capacity on public investment is very poor. It needs to improve the external resource utilisation so that higher returns are materialised from the investments," said Prof Mustafiz in his suggestion for adaptation to status change from an LDC to an LMIC.

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