Home / CPD in the Media / Bangladesh needs to frame guidelines on interest rate for LoCs: Dr Moazzem

Bangladesh needs to frame guidelines on interest rate for LoCs: Dr Moazzem

Published in The Financial Express on Thursday, 5 October 2017 

Bangladesh, India sign deal on $4.5b third LoC

Financing power, rails, roads, shipping and ports priority in deal on the fresh credit line

FE Report

India extended a fresh US$4.5 billion-worth credit line for bankrolling Bangladesh’s select development projects, with 17 hitting the preliminary priority list in the deal.

The two countries signed a deal Wednesday on the third line of credit (LoC) coming from India, as the big neighbour eyes greater trade and transit cooperation with Bangladesh.

Bangladesh’s Economic Relations Division Secretary, Kazi Shofiqul Azam, and Indian Exim Bank Managing Director David Rasquinah inked the deal on behalf of their respective governments and authorities.

Bangladesh Finance Minister AMA Muhith and his visiting Indian counterpart Arun Jaitley witnessed the agreement-signing ceremony held at Bangladesh Secretariat.

Earlier, India gave $2.0 billion and $1.0 billion to Bangladesh in two previous LoCs– one in August 2010 and another in March 2016.

The new credit line will finance projects in power, railway, road, shipping and port sectors.

The rate of interest on the new credit will be 1.0 per cent per annum and the repayment period is 20 years inclusive of a five-year moratorium. An additional 0.5 per cent commitment fees will also be charged.

Like the previous LoCs, in case of the third one, only Indian contractors will be awarded contracts and 75 per cent goods and services have to be procured from the creditor-country.

Speaking on the occasion Mr Jaitley praised Bangladesh for the progresses the country made on the socioeconomic front during last couple of years.

“India sees Bangladesh as not merely a neighbour and a friend but also we deeply appreciate the kind of progress and pace of progress that Bangladesh has been making in the last several years,” he told the function.

Bangladesh has a steady high rate of growth, its socioeconomic parameters are consistently improving, and as a friendly neighbour, India has always been very close partner of Bangladesh, he noted.

“… We are passing through an era of the Indo-Bangla relationship which is at its very best stage,” said the Indian finance minister.

He said businesses of both the countries are looking for investment in each other’s countries.

“This is the largest credit India has ever given to any country. We do hope that the earlier credit also gets executed expeditiously,” Mr Jaitley said.

The host finance minister, Mr Muhith, acknowledged the excellent relationship that presently exists between the two neighbouring countries.

He said Bangladesh always maintain very good ties with all the neighbouring countries.

The minister mentioned that the implementation of projects under previous credit lines was not satisfactory.

“The progress of the implementation of the first and the second LoCs has not been so good. But the initial teething troubles are now over. And we believe that the implementation of this agreement would be pretty fast,” he said.

According to a press release from the economic relations division, with the first $1.0 billion-credit line 15 projects were taken up of which 12 are already completed. Some 14 projects were initiated under the second LoC and they are at different stages of implementation.

However, officials say some projects under the first LoC are still struggling for implementation delays while the physical works of the 14 projects under the second LoC are yet to start.

Contacted over telephone, Research Director of the Centre for Policy Dialogue (CPD) Dr Khondaker Golam Moazzem said Indian LoCs are being given for some sectors where other multilateral lending agencies show less interest.

The third line of credit is further diversified as areas like information and communication technology, special economic zones, and health sectors are included. Thus, Indian LoC has importance to Bangladesh.

He said the implementation delay is seen not only in case of Indian-funded projects but also Chinese and Russian projects.

“But as these credit lines are out from competitive bidding process, common guidelines Bangladesh needs to frame regarding the rate of interest and other conditions,” the policy analyst said.

Bangladesh also needs to discuss with India the reasons behind credit-disbursement delays, he noted.

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