Govt to execute big projects with supplier's credit
Friday, 3 December 2010
FE Report
The government has decided to take supplier's credit for implementing development projects as the planning commission asked the ministries to prepare list of projects to be implemented by hard-loan, officials said.
Planning ministry officials said the commission at a meeting Thursday directed the ministries to prepare list of potential projects within next week.
Following a recent letter from the finance minister AMA Muhith, planning minister AK Khandaker sat with the commission officials for working out ways of taking the supplier's credit for implementing development projects.
A senior planning ministry official said the planning commission has decided to take the hard-loan to expedite implementation of large projects under the current annual development programme (ADP) as those have been facing fund crisis.
"After getting the project lists by next week, we will sit again to assess the necessity of the supplier's credit for executing proposed projects. Then we will ask the ministries to go for further action," he said.
Projects in different sectors like power, energy, transport, telecommunication and the schemes under the public-private partnership (PPP) would be executed through the suppliers' credit, he said.
"For the interest of the nation the government has decided to take suppliers' credit for implementing development projects," AK Khandaker said.
Supplier's credit is a financing arrangement under which an exporter extends credit to an importer to finance its purchase. Usually, the importer pays a portion of the contract value in cash and issues a promissory note or accepts a draft as evidence of his obligation to pay the balance over a period of time.
The credit has higher interest rate from 3.0 percent to 12 per cent with lower repayment period from five to 20 years.
But the interest rate for soft borrowing, normally available from development partners, is below 1.0 per cent and payment time varies from 22-40 years.
Earlier the government planned to lessen hard-term borrowing as it asked the project implementing agencies and the government's fund mobilising agency -- economic relations division (ERD) -- to take soft-loan from donors.
Donor agencies such as the World Bank and International Monetary Fund have reservations about suppliers' credit as it charges high interest.
From financial year 2002 to FY2005, the government received nearly $700 million in suppliers' credit, which dropped to only $50 million during FY2006 to FY2009, ERD statistics showed.
Another senior planning commission official said as the government is trying to implement all the 916 projects under the current Tk385 billion ADP in time it needs huge foreign assistance to cut dependency on inadequate local resources.
The government this year earmarked 23 projects under the PPP in the ADP where it needs billions of dollars investment, he said.
The government targets Tk197 billion fund supply from its own resources for implementing 916 projects in the current ADP.
UNB adds: Planning Minister AK Khandker said the government is planning to revise the ADP in next January.
He said some projects might come soon under the Public Private Partnership (PPP) as they are good response.
On the ADP implementation progress in the first four months of the current fiscal that reached 14 percent, the Planning Minister said although the percentage is less than that of the corresponding period of previous fiscal (2009-10), but the expenditure was higher.
Meanwhile, General Economics Division (GED) member Prof Shamsul Alam said that suppliers' credit should be discouraged unless it becomes indispensable. "Such tied credits sometimes become too expensive."
The government has decided to take supplier's credit for implementing development projects as the planning commission asked the ministries to prepare list of projects to be implemented by hard-loan, officials said.
Planning ministry officials said the commission at a meeting Thursday directed the ministries to prepare list of potential projects within next week.
Following a recent letter from the finance minister AMA Muhith, planning minister AK Khandaker sat with the commission officials for working out ways of taking the supplier's credit for implementing development projects.
A senior planning ministry official said the planning commission has decided to take the hard-loan to expedite implementation of large projects under the current annual development programme (ADP) as those have been facing fund crisis.
"After getting the project lists by next week, we will sit again to assess the necessity of the supplier's credit for executing proposed projects. Then we will ask the ministries to go for further action," he said.
Projects in different sectors like power, energy, transport, telecommunication and the schemes under the public-private partnership (PPP) would be executed through the suppliers' credit, he said.
"For the interest of the nation the government has decided to take suppliers' credit for implementing development projects," AK Khandaker said.
Supplier's credit is a financing arrangement under which an exporter extends credit to an importer to finance its purchase. Usually, the importer pays a portion of the contract value in cash and issues a promissory note or accepts a draft as evidence of his obligation to pay the balance over a period of time.
The credit has higher interest rate from 3.0 percent to 12 per cent with lower repayment period from five to 20 years.
But the interest rate for soft borrowing, normally available from development partners, is below 1.0 per cent and payment time varies from 22-40 years.
Earlier the government planned to lessen hard-term borrowing as it asked the project implementing agencies and the government's fund mobilising agency -- economic relations division (ERD) -- to take soft-loan from donors.
Donor agencies such as the World Bank and International Monetary Fund have reservations about suppliers' credit as it charges high interest.
From financial year 2002 to FY2005, the government received nearly $700 million in suppliers' credit, which dropped to only $50 million during FY2006 to FY2009, ERD statistics showed.
Another senior planning commission official said as the government is trying to implement all the 916 projects under the current Tk385 billion ADP in time it needs huge foreign assistance to cut dependency on inadequate local resources.
The government this year earmarked 23 projects under the PPP in the ADP where it needs billions of dollars investment, he said.
The government targets Tk197 billion fund supply from its own resources for implementing 916 projects in the current ADP.
UNB adds: Planning Minister AK Khandker said the government is planning to revise the ADP in next January.
He said some projects might come soon under the Public Private Partnership (PPP) as they are good response.
On the ADP implementation progress in the first four months of the current fiscal that reached 14 percent, the Planning Minister said although the percentage is less than that of the corresponding period of previous fiscal (2009-10), but the expenditure was higher.
Meanwhile, General Economics Division (GED) member Prof Shamsul Alam said that suppliers' credit should be discouraged unless it becomes indispensable. "Such tied credits sometimes become too expensive."