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Dhaka expects up to $1b in loan guarantee from World Bank agency
06 October, 2023, 12:10 am
Last modified: 06 October, 2023, 12:44 am
TBS Illustration
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TBS Illustration
The Multilateral Investment Guarantee Agency (MIGA) – a member of the World Bank Group – is exploring the possibility of providing guarantees for short-term trade finance facilities to Bangladesh ranging from $500 million to $1 billion for essential imports, according to an official document.
The guarantees will assist in procuring US dollar liquidity for the import of essential commodities including fuel oil; "Noted international commercial lenders" have expressed interest to fund such finance facilities, reads the document prepared for the talks with MIGA Vice-President Junaid Kamal Ahmad on 10 October.
The World Bank agency, which promotes cross-border investment by providing guarantees to investors and lenders, has so far provided support to 12 projects in Bangladesh. Seven of these projects are now active in energy and manufacturing sectors with a gross guarantee exposure of $1.03 billion as of this July.
Independent economists and officials of the Economic Relations Division (ERD) view MIGA's offer for additional guarantee for essential imports as a great relief amid the current shortage of dollars that is delaying payment even of fuel import bills.
An ERD official said when MIGA is the guarantor, the loan will be available at a lower interest rate, credit risk will be reduced, suppliers will also get confidence, and the import process will be expedited and improved.
"On the other hand, there are not many institutions capable of or available for guaranteeing large loans. So, this is a great advantage for us," he told The Business Standard.
There may be further progress on the 10 October meeting with the MIGA vice-president on the sidelines of the annual meeting of the World Bank and the International Monetary Fund (IMF) in Marrakech, Morocco.
Zahid Hussain, former lead economist at the World Bank's Dhaka office, said the guarantee will have a positive effect on the country's imports.
"Foreign banks will not hesitate to finance imports when they know that MIGA is the guarantor. It will act as a catalyst. Those getting coverage under this guarantee will have access to imports of more than $1 billion," he told TBS.
The economist said, when the Bangladesh Petroleum Corporation (BPC) is to import oil, banks will open letters of credit without hesitation and foreign lenders will have confidence. Because, if the BPC defaults on the loan, MIGA will pay it, which will then turn into the government's debt.
Zahid Hussain said amid the persisting dollar crisis, this type of guarantee will provide some relief.
"It is not possible to keep the economy running in the current state of our reserves and the way we are controlling imports."
In a $450 billion economy like Bangladesh, with imports worth $4.5 billion a month, it will not be possible to keep the wheels of the economy moving, he said, adding, "Consequently, we need this type of guarantee to gain trust. We should do whatever necessary to get the guarantee."
According to ERD officials, during a visit six months ago, MIGA's vice president offered a $1 billion guarantee for commodity imports for Bangladesh at 6% interest rate. But the government was not interested in the offer finding the interest rate higher at that time.
However, the interest rate of private sector market-based foreign loans has gone much higher now – around 10%, including the secured overnight financing rate (SOFR) interest rate of 5% plus 4-5% spread, they added.
Finance Division officials say MIGA's portfolio of projects has been concentrated on gas-fired power generation facilities. They expect more support from the agency to encourage more foreign direct investment in renewable energy projects, strengthening or expanding the transmission grid, export-focused industries, special economic zones, ports and healthcare infrastructure.
The multilateral agency will rely on the government's direction to identify and support national priority projects that are economically sustainable and aligned with Bangladesh's climate ambitions that is driven by a climate focused strategy spanning the different industry sectors according to the Finance Division.
At the scheduled meeting with the MIGA's top officials, the Bangladesh's delegation will emphasise on guarantee support for private sector development, capital market development and public-private partnership projects.
Bangladesh's infrastructure needs are estimated at $608 billion by 2040, of which 75% is planned from the private sector, according to Bangladesh's 8th Five-year plan. MIGA can have the opportunity to engage in fulfilling the development needs by attracting foreign investors along with guarantees, ERD officials believe.
www.tbsnews.net
ECONOMY
Saifuddin Saif06 October, 2023, 12:10 am
Last modified: 06 October, 2023, 12:44 am
Six months ago, MIGA’s vice president offered a $1 billion guarantee at 6% interest rate. But the government was not interested finding the interest rate higher at that time
TBS Illustration
" style="box-sizing: inherit; outline: currentcolor; cursor: pointer;">
TBS Illustration
The Multilateral Investment Guarantee Agency (MIGA) – a member of the World Bank Group – is exploring the possibility of providing guarantees for short-term trade finance facilities to Bangladesh ranging from $500 million to $1 billion for essential imports, according to an official document.
The guarantees will assist in procuring US dollar liquidity for the import of essential commodities including fuel oil; "Noted international commercial lenders" have expressed interest to fund such finance facilities, reads the document prepared for the talks with MIGA Vice-President Junaid Kamal Ahmad on 10 October.
The World Bank agency, which promotes cross-border investment by providing guarantees to investors and lenders, has so far provided support to 12 projects in Bangladesh. Seven of these projects are now active in energy and manufacturing sectors with a gross guarantee exposure of $1.03 billion as of this July.
Independent economists and officials of the Economic Relations Division (ERD) view MIGA's offer for additional guarantee for essential imports as a great relief amid the current shortage of dollars that is delaying payment even of fuel import bills.
An ERD official said when MIGA is the guarantor, the loan will be available at a lower interest rate, credit risk will be reduced, suppliers will also get confidence, and the import process will be expedited and improved.
"On the other hand, there are not many institutions capable of or available for guaranteeing large loans. So, this is a great advantage for us," he told The Business Standard.
There may be further progress on the 10 October meeting with the MIGA vice-president on the sidelines of the annual meeting of the World Bank and the International Monetary Fund (IMF) in Marrakech, Morocco.
Zahid Hussain, former lead economist at the World Bank's Dhaka office, said the guarantee will have a positive effect on the country's imports.
"Foreign banks will not hesitate to finance imports when they know that MIGA is the guarantor. It will act as a catalyst. Those getting coverage under this guarantee will have access to imports of more than $1 billion," he told TBS.
The economist said, when the Bangladesh Petroleum Corporation (BPC) is to import oil, banks will open letters of credit without hesitation and foreign lenders will have confidence. Because, if the BPC defaults on the loan, MIGA will pay it, which will then turn into the government's debt.
Zahid Hussain said amid the persisting dollar crisis, this type of guarantee will provide some relief.
"It is not possible to keep the economy running in the current state of our reserves and the way we are controlling imports."
In a $450 billion economy like Bangladesh, with imports worth $4.5 billion a month, it will not be possible to keep the wheels of the economy moving, he said, adding, "Consequently, we need this type of guarantee to gain trust. We should do whatever necessary to get the guarantee."
According to ERD officials, during a visit six months ago, MIGA's vice president offered a $1 billion guarantee for commodity imports for Bangladesh at 6% interest rate. But the government was not interested in the offer finding the interest rate higher at that time.
However, the interest rate of private sector market-based foreign loans has gone much higher now – around 10%, including the secured overnight financing rate (SOFR) interest rate of 5% plus 4-5% spread, they added.
Finance Division officials say MIGA's portfolio of projects has been concentrated on gas-fired power generation facilities. They expect more support from the agency to encourage more foreign direct investment in renewable energy projects, strengthening or expanding the transmission grid, export-focused industries, special economic zones, ports and healthcare infrastructure.
The multilateral agency will rely on the government's direction to identify and support national priority projects that are economically sustainable and aligned with Bangladesh's climate ambitions that is driven by a climate focused strategy spanning the different industry sectors according to the Finance Division.
At the scheduled meeting with the MIGA's top officials, the Bangladesh's delegation will emphasise on guarantee support for private sector development, capital market development and public-private partnership projects.
Bangladesh's infrastructure needs are estimated at $608 billion by 2040, of which 75% is planned from the private sector, according to Bangladesh's 8th Five-year plan. MIGA can have the opportunity to engage in fulfilling the development needs by attracting foreign investors along with guarantees, ERD officials believe.
Dhaka expects up to $1b in loan guarantee from World Bank agency
Six months ago, MIGA’s vice president offered a $1 billion guarantee at 6% interest rate. But the government was not interested finding the interest rate higher at that time
