Analysts warn of government use of foreign liquidity reserves for infrastructure – benarnews

The decision of the government of Bangladesh to borrow funds from the central bank’s foreign exchange reserves for development projects has led analysts to warn that there is “no mechanism of checks and balances” guaranteeing responsibility.

The government of Prime Minister Sheikh Hasina launched the Bangladesh Infrastructure Development Fund (BIDF) last month. the World Bank and China.

“This effort will be aimed at efficient investment of excess foreign currency reserves,” Hasina said at the virtual signing ceremony on March 15.

“It will not only be good for the country, but will also help us develop our own confidence and self-esteem, and we can show the world that we can do it.”

AHM Finance Minister Mustafa Kamal said the government created the fund by taking US $ 2 billion from the foreign exchange reserves of the Bank of Bangladesh – the central bank – to finance infrastructure projects.

“We gave $ 618 million from this fund to Payra Port to develop its channel,” he told BenarNews last week.

“We have not yet decided whether we will take more money from the central bank reserves. I think we need to develop a policy in this regard. We are working on the formulation of the policy, ”Kamal said.

Bangladesh is the first government in South Asia to create such a fund, according to Mahmood Osman Imam, professor of finance at Dhaka University.

“To the best of my knowledge, Bangladesh is the first country in South Asia to use foreign currency from the central bank reserve,” he told BenarNews.

“This decision is good in the sense that we don’t need to go to foreign countries or foreign lenders to get funds, so we won’t need to pay high interest for the loan”, a- he declared.

Still, he said he was concerned about the fund.

“One of the biggest risks is corruption. Very often we find that the time and cost of projects are stretched. Any unjustified increase in costs would render projects unsustainable or lose businesses – in which case the whole investment would be jeopardized, ”Osman Imam said, noting that there is no independent body to monitor. funding.

Another analyst offered a similar view on government action.

“The $ 2 billion loan [from the reserves] is not a large amount, it is acceptable. But taking more loans from reserves is risky, ”Professor Mustafizur Rahman told BenarNews, referring to how much Hasina’s government had placed in the fund.

“It’s risky because there is no mechanism of checks and balances in the lending process,” said Rahman, a researcher at the Center for Policy Dialogue, a private think tank.

The money was transferred to BIDF from $ 44 billion in foreign currency held by the central bank, Kazi Sayedur Rahman, deputy governor of Bangladesh Bank, told BenarNews.

“In fact, the decision to use the central bank reserve funds for infrastructure development was taken by the government and we agreed to it. We have provided the funds and are involved in the execution of the government’s decision, ”he said.

“We have no headaches regarding the implementation and sustainability of the project. “

Salehuddin Ahmed, former central bank governor, said the amount of foreign currency in reserves was high as remittances sent by expatriates continued during the pandemic while imports declined, requiring less spending. The government collects some of the money returned by expatriates and has had to spend less this year as the need for imports has decreased.

“Borrowing from central bank reserves is not a good idea. For now, we can afford $ 2 billion, but this example should not open the door to borrowing from the central bank reserve, ”he said.

According to an article in the Daily Star, a local newspaper, “the government will only use the fund to invest in projects that would have a high rate of return, and BIDF’s annual investment would not exceed $ 2 billion.”

“[T]The government has decided to give it the green light, hoping that it will generate significant returns and also help save on foreign exchange spent on projects where costs often skyrocket due to interest rates and other hidden costs of foreign loans, ”the Star reported.

Foreign loan problems

Mustafizur Rahman noted that the government was using these funds because they would be challenged by foreign lenders such as the World Bank, the Asian Development Bank or the Chinese government.

“It’s because agencies and countries have their own rules for approving loans to a country. The borrower must meet the conditions to get the funds. In addition, they would ask questions about whether the projects they were going to fund were economically, socially and environmentally sustainable, ”he told BenarNews.

“In addition, the lenders are carefully considering whether there was a risk of corruption in the project.”

In establishing the fund, the government serves as a project evaluator and recipient of BIDF allocations, Rahman said.

“There is no mechanism in place to raise questions about the cost or the viability of the project,” he said. “The government’s word is final.

Kamal said this is not the case even though the government does not have the expertise to determine the cost of the Port of Payra and other large projects.

“It is not true that there is no mechanism to maintain checks and balances in the allocation of funds for projects,” Kamal said. “A world-renowned German consulting firm has assessed the cost of the canal development project. Based on the assessment, we fixed the loan amount at the port of Payra.

Role of Sonali bank

Subhash Chandra Das, CFO of Sonali Bank, said his bank had received the funds from Bangladesh Bank and would handle the transfer of funds for the port project.

“We will donate the money in 12 installments over the next three years. After receiving each installment, the Ministry of Finance, on behalf of the Payra Port Authority, will pay us 2% interest – we will get 1% while the Central Bank of Bangladesh will get 1% interest ”, a- he said, adding that the port must repay the loan over seven years after receiving the last payment.

Chinese loans carry 3% interest as well as service fees and take time to be approved, authorities say.

Last month, Kamal said the government planned to use foreign loans for the Payra project.

“But we changed it and decided to implement it with our own funding,” he told reporters, saying seeking foreign loans would increase the cost of the project.

“Since we have our money, we will take part of the foreign exchange reserve to implement the project – there is no ambiguity about this,” he said.

Since returning to power in 2009, Hasina’s ruling party, the Awami League, has promoted “development policy.”

In accordance with this policy, the government established the 6.15 km (3.8 miles) double-decker Padma Bridge that would connect the capital to the south-central and southwestern part of Bangladesh, separated by the Padma River. . It has used general funds to pay for the construction of the road section of the bridge while China is funding the rail section which is expected to be completed in 2024.

The government is also implementing the first subway rail project to reduce traffic jams in Dhaka. Funded by Japan, the project is due to be completed by the end of the year, officials said.

In addition, the government has undertaken road, bridge and railroad projects with funding from China and India.

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