The International Monetary Fund will review whether the government’s new financing arrangement for constructing Padma bridge will have any negative impact on the country’s fiscal, external and debt sustainability.
The Washington-based lender is also discouraging the government from setting up nuclear power plants with credit from Russia at high interest rates.
In its country report on Extended Credit Facility (ECF) loans on March 11, the IMF clarified its position on these two major issues.
An IMF team will visit Dhaka on March 20 to discuss issues related to the bridge project with the government, said finance ministry officials.
Referring to Bangladesh government’s move to have a new financing framework for the bridge project, the IMF said more information on new financing modalities on the project would be needed to assess its full impact on the country’s fiscal, external and debt sustainability.
The ECF loan is tagged with a major condition that restricts Bangladesh government’s hard-term borrowing from external sources.
When the ECF loan programme was launched in April last year, the IMF fixed the limit for Bangladesh for hard-term borrowing at $1 billion a year.
But the IMF raised the ceiling to $1.5 billion a year on request from Bangladesh government that was under pressure from different sectors to go for further borrowing.
A finance ministry official said the IMF would closely watch whether external borrowing for financing the Padma bridge project crosses the limit for hard-term borrowing.
About one and a half months have elapsed since the government withdrew its request to the WB for $1.2 billion funding, but the government is yet to finalise financing arrangement to implement the project, one of the ruling party’s key election pledges.
Finance Minister AMA Muhith told reporters last week that the financing arrangement would be finalised in the next 20 days.
Officials said the communications ministry is trying to persuade the government high-ups to accept the costly Malaysian financing proposal for building the bridge, despite the finance ministry’s strong reservations about the proposal.
The report said, “The authorities [Bangladesh government] will formulate alternative financing arrangements including with other development partners while ensuring that the near-term resource needs for the construction of the bridge fall within the quantitative performance criteria and indicative targets.”
It said the IMF conditions for hard-term borrowing were not followed in the loan contracts involving $1.5 billion with Russia for nuclear power plants and defence purchases.
The construction of two 1,000-megawatt nuclear reactors between fiscal years 2017 and 2021 will require further non-concessional borrowing of $6 billion, said the report.
“The introduction of nuclear power would create health, safety, and environmental challenges especially given the high population density in Bangladesh, which are likely to require ample investment in technical expertise and regulatory capacity.
“Feasibility studies are needed to ascertain such costs to ensure that sufficient fiscal resources are set aside for proper risk mitigation,” the report said.
In this context, the IMF encouraged Bangladesh to continue to pursue a full range of alternatives in developing the power sector and evaluate the potential investment in nuclear power in the context of least-cost options for generating electricity.
The lender also encouraged Bangladesh to “establish fiscal contingencies to ensure adequate safeguards are in place, in the event the government proceeds with constructing the new reactors”.
However, the report, on a positive note, acknowledged that the nuclear power plants would expand electricity supply — a major growth constraint in Bangladesh, and possibly increase growth over the long run.
Source: The Daily Star
