IMPORT OF ESSENTIALS: Miga offers up to $1b guarantee to Bangladesh

[Black_cats]

Published on 12:00 AM, January 11, 2023

IMPORT OF ESSENTIALS: Miga offers up to $1b guarantee to Bangladesh​

Star Business Report

The commerce ministry is awaiting a decision from the central bank and the finance ministry on using $500 million to $1 billion of foreign loans to import essential commodities on the back of a guarantee from the Multilateral Investment Guarantee Agency (Miga).

The Miga is a member of the World Bank Group and its mandate is to promote cross-border investment in developing countries by providing guarantees (political risk insurance and credit enhancement) to investors and lenders.

In a letter to the BB and the finance ministry recently, the World Bank Group arm offered to become a guarantor for the import of essential commodities worth $500 million to $1 billion.

"As far as I know, the Miga has sent a letter to the central bank and the finance ministry expressing its interest to be a guarantor to facilitate the import of essential goods," Senior Commerce Secretary Tapan Kanti Ghosh told The Daily Star yesterday.

How the funds would be used and disbursed are yet to be decided. "The discussion is at a very primary level now," Ghosh said.

The issue is being discussed among the officials of the Miga, the BB and the finance ministry. "The final decision will come from the central bank and the finance ministry," said the senior secretary.

Multilateral Investment Guarantee Agency (Miga) is a member of the World Bank Group and its mandate is to promote cross-border investment in developing countries by providing guarantees

Once the decision is made, the commerce ministry will move for the imports of essential commodities using the guarantee.

Md Mezbaul Haque, the spokesperson of the Bangladesh Bank, no decision had been taken about the issue yet.

The development comes amid the falling foreign currency reserves of Bangladesh, which threatens to hurt the supply of essentials in the local market.

The reserves have been declining steadily since the Russia-Ukraine war erupted as it has sent the prices of commodities higher. As a result, Bangladesh has to pay more to buy essentials from external sources but export earnings and remittance receipts have not gone up proportionately.

Amid escalated imports, the reserves slipped below $33 billion this week after the central bank cleared international import bills. It was $44.95 billion in early January of 2021.

The government is trying to ensure a smooth supply of imported items such as rice, wheat, edible oil, sugar, lentil, onion, chickpeas and dates, amid a dollar shortage in the banking sector.

The import of edible oil, sugar, lentil, onion, chickpeas and dates dipped in July-November as traders face difficulties in opening letters of credit (LCs) amid the US dollar shortage. This led traders and importers to warn that there might be a shortage of the items during Ramadan when their demand usually surges.

Following requests from the business community, the commerce ministry has already suggested the central bank set aside US dollars to be used by private importers before the fasting month to purchase key essentials from the international markets.

Miga offers up to $1b guarantee to Bangladesh

The commerce ministry is awaiting a decision from the central bank and the finance ministry on using $500 million to $1 billion of foreign loans to import essential commodities on the back of a guarantee from the Multilateral Investment Guarantee Agency (Miga).

www.thedailystar.net

 

[fallstuff]

Hasina said foreign reserve went up recently. They are asking IMF for money.
Why do they need to borrow money to buy essentials ?
WTF is really going on ? It's time they get S Alam to pay for the essentials.

 

[UKBengali]

Hasina said foreign reserve went up recently. They are asking IMF for money.
Why do they need to borrow money to buy essentials ?
WTF is really going on ? It's time they get S Alam to pay for the essentials.

We need to stop seeing what we want to see.

BD government is being ultraconservative here as always.

Despite the fact that FX reserves are rising, there is still a lot of pressures in the economy happening and if someone makes an offer like this, then you need to at least consider the offer. Better to be careful then let pride make your decisions for you.

Please do not get into the paranoid territory that BD government can somehow "fake" FX reserves as it is easy to check against exports and remittances, that can be cross-verified with countries around the world where exports go to and remittances come from.

 

[Destranator]

Hasina said foreign reserve went up recently. They are asking IMF for money.
Why do they need to borrow money to buy essentials ?
WTF is really going on ? It's time they get S Alam to pay for the essentials.

Forex reserve management is not as simple as what you are making it out to be. You (and anyone else who raises such questions) need to consider that Bangladesh has a population of 160 million+, annual import bills worth 70 billion+, a very undiversified export basket and highly vulnerable expatriate worker pool due to low skill levels.
Even a reserve worth $100 billion would be insignificant when you consider the above.

Bangladesh's foreign reserves have fallen drastically from high 40 billion to low 30 billion within a year. The recovery has been slow so far.

While we are not at crisis yet, we may end up in one if exports and remittances do not rebound quickly enough.
The government must ensure it has forex support lined up should they need it. IMF lending is not an instantaneous process, it involves months worth assessments and due diligence before granting GRADUAL release of funds. The 4.5 billion they have agreed to lend will be released in chunks upon satisfactory address of their conditions.
Hasina is not stupid enough to pull out from the deal just because there has been slight recovery in the reserve level.

 

[fallstuff]

We need to stop seeing what we want to see.

BD government is being ultraconservative here as always.

Despite the fact that FX reserves are rising, there is still a lot of pressures in the economy happening and if someone makes an offer like this, then you need to at least consider the offer. Better to be careful then let pride make your decisions for you.

Please do not get into the paranoid territory that BD government can somehow "fake" FX reserves as it is easy to check against exports and remittances, that can be cross-verified with countries around the world where exports go to and remittances come from.

You can keep the Kool-Aid all to yourself !

Let me put it to you this way. Someone who has fancy homes and cars but need to borrow money to buy groceries ( rice, lentil, oil..) is not exactly in great financial shape.
Someone in BD Govt needs to learn how to do foreign reserve cash flow statement and forecast without using fuzzy math.
Like someone needs to learn that if you got 250 crore Taka equity in your bank you cannot borrow 30,000 crore Taka if the rules in the book mean something.

If I were you I would stay away from that Kool-Aid, that sugar will get you. It always does my friend !

 

[UKBengali]

You can keep the Kool-Aid all to yourself !

Let me put it to you this way. Someone who has fancy homes and cars but need to borrow money to buy groceries ( rice, lentil, oil..) is not exactly in great financial shape.
Someone in BD Govt needs to learn how to do foreign reserve cash flow statement and forecast without using fuzzy math.
Like someone needs to learn that if you got 250 crore Taka equity in your bank you cannot borrow 30,000 crore Taka if the rules in the book mean something.

If I were you I would stay away from that Kool-Aid, that sugar will get you. It always does my friend !

Did you even bother to read and try to understand my post before replying?

Your analogy is ridiculous btw,

32 billion US dollars of reserves for 165 million people with a per capita GDP PPP of 8,000 US dollars is not that much.

 

[Black_cats]

Published on 08:30 AM, January 20, 2023

Bangladesh wants MIGA-backed loans at 4% max​

Bangladesh wants MIGA-backed loans at 4% max

Bangladesh plans to pay a maximum of 4 per cent in the interest rate and commissions against the loans to be guaranteed by the Multilateral Investment Guarantee Agency (MIGA), said officials of the commerce ministry yesterday.

www.thedailystar.net

Refayet Ullah Mirdha

Bangladesh plans to pay a maximum of 4 per cent in the interest rate and commissions against the loans to be guaranteed by the Multilateral Investment Guarantee Agency (MIGA), said officials of the commerce ministry yesterday.

Recently, the MIGA in a letter to the Bangladesh Bank and the finance ministry offered to become a guarantor for the import of essential commodities worth $500 million to $1 billion.

The MIGA is a member of the World Bank Group and its mandate is to promote cross-border investment in developing countries by providing guarantees (political risk insurance and credit enhancement) to investors and lenders.
The MIGA has sought 6 per cent in the interest rate and commissions.

A number of officials from the MIGA and the World Bank discussed the issue at a meeting with Senior Commerce Secretary Tapan Kanti Ghosh at his secretariat office in Dhaka yesterday.

After the meeting, Ghosh told The Daily Star that Bangladesh wants the MIGA-guaranteed loan at 2 per cent or 4 per cent.

The MIGA itself will not provide any loans to Bangladesh. Rather, it will manage the fund from international financial institutions to provide the amount to Bangladesh, he said.

The MIGA will be the guarantor of the loan.

The World Bank arm has had to step in as international financial institutions may decline to provide loans to Bangladesh given the volatile global economic situation and the dollar crisis in the banking sector of the country.

The MIGA wants the central bank of Bangladesh to mobilise the fund, Ghosh said.

So, the final decision regarding availing the MIGA-backed loan and fixing the interest rate is depending on the central bank. "We are awaiting the central bank's decision," Ghosh said.

If Bangladesh agrees to the terms and conditions related to the loans, it may take two months to have the fund disbursed. Local importers will get the funds to buy essential commodities from external sources.

Bangladesh needs US dollars as its foreign currency reserves have declined sharply amid a surge in import bills fuelled by escalated commodity prices owing to the fallout of the coronavirus pandemic and the Russia-Ukraine war.

The reserves slipped below $33 billion recently from $44.95 billion in January of 2021.

The government is trying to ensure a smooth supply of imported items such as rice, wheat, edible oil, sugar, lentil, onion, chickpeas and dates during Ramadan when their demand usually surges.

But the import of edible oil, sugar, lentil, onion, chickpeas and dates dipped in July-November as traders face difficulties in opening letters of credit (LCs) amid the US dollar shortage. This led traders and importers to warn that there might be a shortage of the items during the fasting month.

Bangladesh is also negotiating with India for a guaranteed supply of wheat, rice and sugar with a view to forming a buffer stock of food items ahead of Ramadan.

On January 5, the commerce ministry asked the central bank to instruct banks to earmark a portion of their foreign currency holdings to open LCs to facilitate the imports of edible oil, refined sugar, lentil, onion, gram and dates.