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Will NDB loans slip away?
29 October, 2022, 10:55 pm
Last modified: 29 October, 2022, 11:07 pm
www.tbsnews.net
Bangladesh's joining the New Development Bank (NDB) in 2021 raised hopes that the new avenue would help the country meet the growing need for foreign financing.
After one year, it now appears that the membership is left largely idle due to the laxity of ministries and divisions in preparing project proposals. Of the 19 ministries approached in one year, only one could prepare a preliminary proposal so far, officials at the Economic Relations Division (ERD) said.
Officials at the ministries claim they are not adequately aware of the terms and conditions of the loans offered by the bank.
The slow progress limits Bangladesh's potentials to avail funds ranging from $3 billion to $5 billion from the new development lender's $30 billion portfolio for the 2022-26 period, ERD officials pointed out.
Since Bangladesh became a member of the bank in September 2021, the ERD sent multiple letters to 19 ministries asking for preliminary development project proposals to secure the NDB loan.
Citing the lender, the letters told the ministries that each development project will be provided with around $300 million in funding. But the ERD is yet to receive loan proposals for major infrastructural works except a $245 million water supply project in Dhaka.
"The sooner the loan proposals are sent the better as the NDB has recently announced its lending strategy for the next five years," said an Economic Relations Division official while talking to The Business Standard on condition of anonymity.
Loan negotiations generally start after the development partners receive the preliminary development project proposals. Then the foreign partners issue the initial loan guarantee paving the way for main project proposal submission. Subsequently, the loans are approved and agreements are signed.
Delay in sending proposals will reduce chance of getting loan
Referring to this foreign funding process, the official said a delay in sending the preliminary proposal will eventually decrease the country's chances of getting the loans in the next five years.
China led the formation of the New Development Bank in 2014, prioritising six development financing sectors in five major emerging economies: Brazil, Russia, India, China and South Africa.
In the 2017-21 period, the Brics bank approved more than $29 billion in loans to 74 projects in Russia, India, China and South Africa. The bank will disburse another $30 billion in the 2022-2026 period, according to its new five-year lending strategy.
In line with the SDGs, the funding sectors are: clean energy and energy efficiency, transport infrastructure, water and sanitation, environmental protection, social infrastructure and digital infrastructure.
Apart from Bangladesh, three new countries – Egypt, the United Arab Emirates, and Uruguay – joined the bank in 2021.
The country so far has received $2.78 billion loan pledges to 12 projects from the Asian Infrastructure Investment Bank that was launched in 2016 led by China.
Terming Bangladesh's membership of the NDB a new window of opportunity towards development, economists and experts said the Brics bank would be a new funding source alongside the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank.
Lack of capacity to prepare project proposals
They also identified a lack of capacity to formulate bankable development projects by the authorities.
Reiterating the capacity gap, Policy Research Institute of Bangladesh Executive Director Ahsan H Mansur said multilateral development agencies such as the World Bank or the Asian Development Bank assist implementing agencies in preparing project proposals and feasibility reports before finalising loans.
"Therefore, ministries and divisions can easily take projects financed by the World Bank or the Asian Development Bank. But they are less interested in development schemes financed by the NDB since the bank does not assist in preparing the proposals and reports," he told The Business Standard.
"ERD didn't brief in detail"
However, the ministries and divisions claimed they are not aware of the terms and conditions for NDB loans as the bank is new. Besides, the Economic Relations Division did not brief them in detail.
"It could have been easier if the Economic Relations Division had briefed us about the NDB loans. It is difficult to take up projects without knowing the financing terms," SM Salimullah Bahar, chief planning officer of the Bangladesh Railway, told The Business Standard.
Noting NDB loans would not match railway financing requirements, he said, "Almost all railway projects are large. If the size of the NDB loans is not increased, we will not be able to avail those."
Masuma Akter, joint secretary of the Economic Relations Division, said ministries could not submit the preliminary project proposals to them as the Planning Commission did not endorse those.
For example, a 120MW solar power plant for the NDB financing was sent to the commission in August this year, according to another Economic Relations Division official, but it is yet to get the approval in principle.
Pending law for NDB loans also holds up process
The authorities are also yet to finalise a law for the NDB financing, which will enable Brics bank-funded projects to avail some tax waivers. The draft of the law is now awaiting the Cabinet Division approval.
Similar to the Asian Infrastructure Investment Bank, NDB offers the loan with floating interest rates. The rates range from the Secured Overnight Financing Rate (SOFR)+1.30% to SOFR+1.65%. Besides, there are 0.25% front end fee and 0.65% commitment fee.
In contrast, the Asian Infrastructure Investment Bank offers loans at SOFR+0.79% to SOFR+1.29%, plus 0.25% front end and 0.65% commitment fees.
The Economic Relations Division estimates NDB borrowing cost is 0.51% higher than the Asian Infrastructure Investment Bank due to NDB being a newer bank with a lower credit rating.
But NDB loans offer cost efficiency in consultancy, a top Economic Relations Division official told The Business Standard, adding, "Flexible loans are becoming increasingly expensive. Consequently, there should be a committee to scrutinise NDB's flexible credits."
ECONOMY
Saifuddin Saif29 October, 2022, 10:55 pm
Last modified: 29 October, 2022, 11:07 pm
Will NDB loans slip away?
The Brics bank approved around $29 billion loans for member countries in the 2017-21 period, as it now targets another $30 billion credit disbursement in 2022-2026
The Brics bank approved around $29 billion loans for member countries in the 2017-21 period, as it now targets another $30 billion credit disbursement in 2022-2026
Bangladesh's joining the New Development Bank (NDB) in 2021 raised hopes that the new avenue would help the country meet the growing need for foreign financing.
After one year, it now appears that the membership is left largely idle due to the laxity of ministries and divisions in preparing project proposals. Of the 19 ministries approached in one year, only one could prepare a preliminary proposal so far, officials at the Economic Relations Division (ERD) said.
Officials at the ministries claim they are not adequately aware of the terms and conditions of the loans offered by the bank.
The slow progress limits Bangladesh's potentials to avail funds ranging from $3 billion to $5 billion from the new development lender's $30 billion portfolio for the 2022-26 period, ERD officials pointed out.
Since Bangladesh became a member of the bank in September 2021, the ERD sent multiple letters to 19 ministries asking for preliminary development project proposals to secure the NDB loan.
Citing the lender, the letters told the ministries that each development project will be provided with around $300 million in funding. But the ERD is yet to receive loan proposals for major infrastructural works except a $245 million water supply project in Dhaka.
"The sooner the loan proposals are sent the better as the NDB has recently announced its lending strategy for the next five years," said an Economic Relations Division official while talking to The Business Standard on condition of anonymity.
Loan negotiations generally start after the development partners receive the preliminary development project proposals. Then the foreign partners issue the initial loan guarantee paving the way for main project proposal submission. Subsequently, the loans are approved and agreements are signed.
Delay in sending proposals will reduce chance of getting loan
Referring to this foreign funding process, the official said a delay in sending the preliminary proposal will eventually decrease the country's chances of getting the loans in the next five years.
China led the formation of the New Development Bank in 2014, prioritising six development financing sectors in five major emerging economies: Brazil, Russia, India, China and South Africa.
In the 2017-21 period, the Brics bank approved more than $29 billion in loans to 74 projects in Russia, India, China and South Africa. The bank will disburse another $30 billion in the 2022-2026 period, according to its new five-year lending strategy.
In line with the SDGs, the funding sectors are: clean energy and energy efficiency, transport infrastructure, water and sanitation, environmental protection, social infrastructure and digital infrastructure.
Apart from Bangladesh, three new countries – Egypt, the United Arab Emirates, and Uruguay – joined the bank in 2021.
The country so far has received $2.78 billion loan pledges to 12 projects from the Asian Infrastructure Investment Bank that was launched in 2016 led by China.
Terming Bangladesh's membership of the NDB a new window of opportunity towards development, economists and experts said the Brics bank would be a new funding source alongside the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank.
Lack of capacity to prepare project proposals
They also identified a lack of capacity to formulate bankable development projects by the authorities.
Reiterating the capacity gap, Policy Research Institute of Bangladesh Executive Director Ahsan H Mansur said multilateral development agencies such as the World Bank or the Asian Development Bank assist implementing agencies in preparing project proposals and feasibility reports before finalising loans.
"Therefore, ministries and divisions can easily take projects financed by the World Bank or the Asian Development Bank. But they are less interested in development schemes financed by the NDB since the bank does not assist in preparing the proposals and reports," he told The Business Standard.
"ERD didn't brief in detail"
However, the ministries and divisions claimed they are not aware of the terms and conditions for NDB loans as the bank is new. Besides, the Economic Relations Division did not brief them in detail.
"It could have been easier if the Economic Relations Division had briefed us about the NDB loans. It is difficult to take up projects without knowing the financing terms," SM Salimullah Bahar, chief planning officer of the Bangladesh Railway, told The Business Standard.
Noting NDB loans would not match railway financing requirements, he said, "Almost all railway projects are large. If the size of the NDB loans is not increased, we will not be able to avail those."
Masuma Akter, joint secretary of the Economic Relations Division, said ministries could not submit the preliminary project proposals to them as the Planning Commission did not endorse those.
For example, a 120MW solar power plant for the NDB financing was sent to the commission in August this year, according to another Economic Relations Division official, but it is yet to get the approval in principle.
Pending law for NDB loans also holds up process
The authorities are also yet to finalise a law for the NDB financing, which will enable Brics bank-funded projects to avail some tax waivers. The draft of the law is now awaiting the Cabinet Division approval.
Similar to the Asian Infrastructure Investment Bank, NDB offers the loan with floating interest rates. The rates range from the Secured Overnight Financing Rate (SOFR)+1.30% to SOFR+1.65%. Besides, there are 0.25% front end fee and 0.65% commitment fee.
In contrast, the Asian Infrastructure Investment Bank offers loans at SOFR+0.79% to SOFR+1.29%, plus 0.25% front end and 0.65% commitment fees.
The Economic Relations Division estimates NDB borrowing cost is 0.51% higher than the Asian Infrastructure Investment Bank due to NDB being a newer bank with a lower credit rating.
But NDB loans offer cost efficiency in consultancy, a top Economic Relations Division official told The Business Standard, adding, "Flexible loans are becoming increasingly expensive. Consequently, there should be a committee to scrutinise NDB's flexible credits."
