Monday, October 18

Govt moots plan to tide over soft loan crisis


 

 

As per IMF conditions, the government cannot borrow non-concessional loans beyond a certain amount in a given period of time. The IMF considers a loan carrying less than 35 per cent grant element as non-concessional or hard-term loan

Bangladesh is going to formulate a strategy to receive more non-concessional or commercial loans from external sources to meet the growing demand for funds. This is being done as there has been a decline in government to government (G to G) soft loans.

Besides, the Economic Relations Division cannot process non-concessional loans following the Public Procurement Act, 2006 and Public Procurement Rules, 2008, as well as changes made in the condition of non-concessional loans from non-government to government sources.

The government has now formulated a draft policy for non-concessional loans from non-government to government sources, like bilateral or multilateral lending organisations. A meeting on the draft policy was held at the ERD on November 2.

According to the draft policy, the government will take non-concessional loans from non-government to government sources when there is an alternative source to provide funds for government prioritised projects.

However, it says non-concessional loans will be taken when any assurance is received from a develop-ment partner.

The government will not receive proposal for unsolicited supplier’s credit at any cost, except Public-Private Partnership projects and the Special Act 2010 for speedy supply of power and energy. But the policy says there should be a ceiling for non-concessional loans.

About negotiation for non-concessional loans, approval of the pre-development project plan from the Planning Commission is required.

The external loan search committee of the ERD will also examine the project and whether the ministry concerned would carry out all official formalities or not before starting negotiation.

On the other hand, the strings attached to the extended credit facility (ECF) of the International Mone-tary Fund (IMF) have emerged as major hurdles to borrowing funds by the government from develop-ment partners like the Islamic Development Bank (IDB) and China.

As per IMF conditions, the government cannot borrow non-concessional loans beyond a certain amount in a given period of time. The IMF considers a loan carrying less than 35 per cent grant element as non-concessional or hard-term loan.

The grant element is defined as the difference between the loan’s nominal value (face value) and the sum of the discounted future debt-service payments to be made by the borrower (present value), expressed as a percentage of the loan’s face value, the IMF’s definition said.

“Having failed to get more concessional loans from traditional sources like the World Bank, the ADB and the Japan International Cooperation Agency (JICA), we have gone for non-concessional loans from other lenders,” a senior official of the ERD said.