Failure to repay loan to be very harmful
Golam Mostafa Jibon: Private power entrepreneurs seek loans from foreign currency reserves what they said it will save money. However, Bangladesh Bank (BB) has not yet agreed to this.
But, concerned experts said it is risky for the country’s economy. Failure to repay the loan will be harmful.
The Bangladesh Independent Power Producers Association (BIPPA), an organization of private power entrepreneurs, has already applied for a loan for private power plants from foreign currency reserves. BB has set up a committee to look into whether loans can be given in this way.
According to BB sources, no decision has yet been taken to give loans from foreign currency reserves. Only investments in government projects are under review.
Recently, a committee has been formed headed by Humayun Kabir, Executive Director of the BB’s Foreign Currency Policy. This committee will review the use of foreign currency reserves. It will be seen both the risks and benefits in money investment. At the same time, the use of other countries will be reviewed and recommended.
Direction has given in the meeting of the Executive Committee of the National Economic Council (ECNEC) to analyze whether loans could be given to government projects from foreign currency reserves. Finance Minister AHM Mustafa Kamal had earlier said that a final decision would be taken before the next budget. Private entrepreneurs have also applied for these loans as part of the initiative to provide loans for government projects. They also want to repay the foreign loan taken for the center which has been set up.
According to BB, the policy that is being formulated only includes lending from foreign currency reserves to government projects. There is no question of giving loans to private entrepreneurs.
BIPPA has applied to BB through the Ministry of Power, Energy and Mineral Resources for this loan.
According to the application, steps have been taken to provide loans for the construction of public and private sector infrastructure from reserves. The power sector is one of the eligible sectors in the line of priority to get such loans as all the projects in this sector are guaranteed by the government guarantor.
At present, there is a foreign debt of about three to four billion dollars. In the next few years, another $ 300 billion in foreign debt will be invested in this sector. Getting a loan from the reserve will save foreign currency, relevant sources claimed.
Experts on the use of foreign currency reserves said that, much of the reserves are lazy. The government can spend the rest on development if it wants, keeping the money to cover the import cost for five to six months. This money must be used with extreme caution.
In order to avoid wastage in any way, the project must be selected. For this, we have to select a project which will ensure good governance to the maximum extent and will definitely bring profit.
The return of this money must be ensured in any way. The 35 to 36 billion dollar reserve are not too much. Now the import sector is spending less. But if the situation is normal, the cost of imports will increase then this reserve will become very valuable.
Orion Group has applied alone to take a loan from the reserve. Orion Group has sought a loan of $906 million or Tk 7,684 crore from Bangladesh Bank through Agrani Bank for setting up a coal power plant. This was the first loan application from the reserve on behalf of private entrepreneurs.
However, no decision has been taken yet on the loan, BB sources said.
Orion Power Plant-2 Dhaka Limited Power Project is to be set up on the banks of Meghna River in Gazaria Upazila of Munshiganj.
The cost was estimated at $113 crore or Tk 9,653 crore. Orion wants a loan of 80 percent of the total cost.
Experts said, all issues need to be reviewed. Reserve money means that Bangladesh Bank invests in foreign bonds or guarantors or in other ways does not earn more than one percent income. But if the country gives a loan to set up a power plant, it will be able to take interest of more than one percent. This will increase the income of the government.
On the other hand, to set up a power plant, one has to take a loan at an interest rate of about 6 percent. This loan is to be repaid in foreign currency. If you can get a loan from Bangladesh Bank at less than 6 percent interest, then both are profitable.
The government wants to lend from the reserve. The power sector is making a big contribution to the economy.
According to BB sources, the government has to be the guarantor of the loan in order to use the reserve money. However, the Ministry of Finance and the Central Bank are not in favor of using this money outside the government projects now.
Earlier in 2015, the committee, which sought advice on the use of foreign currency said that the funds could be used only for large government projects or for the implementation of public-private partnership (PPP) projects. However, the duration of the project will not be long. We also need to ensure uninterrupted profits at all times.
Now the foreign exchange reserves have exceeded 35 billion dollars or 3500 crore dollars. In this sense, it is possible to meet the import cost of Bangladesh for about a year.
The country has no policy of borrowing or investing in foreign currency. There is only a brief policy on where the reserve money is, how the interim investment will be kept. In the light of this, the reserve money is invested in different currencies or government bonds at different rates. Most of the money is kept in dollars.
Experts seem that it would not be right to give loans directly from the reserve. This will put the foreign currency reserves at risk. Reserve is to deal with the crisis.
There are many opportunities to take out foreign loans at low interest rates. Despite borrowing in local currency from commercial banks, the central bank is providing foreign currency as per the demand. This is the international tradition. In this case, the central bank and the government have to take a strict stance.
The central bank uses money from the reserves in different ways. The central bank has various funds in foreign currency. Loans are given directly from these. The interest rate on these loans is 1.5 to 3 percent. These include the Export Development Fund (EDF). There is a 200 million dollars fund to set up eco-friendly industries. In addition, there is another fund for the import of industrial equipment.
Usually the central bank provides foreign currency to the concerned banks on demand to repay the debts of large bonds or LCs.