No need to use reserve for Padma Bridge: Experts

Experts rule out the possibility of using forex reserves to finance the Padma bridge project.

Can Bangladesh finance the Padma bridge project on its own? The question has arisen after the government said it would go ahead and provide the required $1.2 billion in foreign currency after the World Bank, the lead financier, pulled out citing evidence of corruption in the bidding process.

Other financiers --JICA, ADB and IDB-- followed suit, leaving the $2.91 billion mega project in limbo.

After their withdrawal, China and Malaysia offered to fund what would be Bangladesh's most ambitious infrastructure project to date.

But, buoyed by rising foreign exchange reserves and rising export earning, the government decided to fund the project from its own resources.

Not surprisingly, the opposition Bangladesh Nationalist Party (BNP) immediately alleged that it would create pressure on the forex reserves and hit the economy hard.

But experts beg to disagree. Zaid Bakht, a research director with the Bangladesh Institute of Development Studies (BIDS), believe it won’t have much of an impact on the economy as Bangladesh does not need to use its reserves to fund the project.

Quazi Saidur Rahman, chief of Bangladesh Bank’s treasury management wing, agrees, saying the opposition claim has been made without understanding the issue or it has been politically motivated.

Both experts also elaborated on how the foreign exchange part of the project will be funded without using the reserve; between $1.8 billion to 2 billion is estimated to be required for meeting the cost of procurement of materials from outside.

“The fund will be needed in phases spread over 4 to 5 years. In a year we might need $100 million; in another year it may be 200 million. But, under any circumstances we won’t need more than $500 million in a single year,” Bakht, of BIDS, said.

“That’s why we don’t need to touch the reserve. Whatever funding is required for foreign procurement can be done by the respective bank through opening of Letter of Credit (LC) and in this case, the dollar is usually bought from the open market,” he added.

Bangladesh Bank’s Saidur Rahman cited the example of importing petroleum products, which require $3 billion to $3.5 billion annually and is done through opening of L/C.

“If dollar is needed in some special circumstances, the bank which will open the L/C can buy it from the central bank.” Rahman said, adding, “If the government needs foreign currency they can also buy from us.”

Given the healthy remittance flow, commercial banks can easily buy $2 billion from the open market over the next four years, he said.

On Wednesday, the forex reserves stood at an all-time high of $18.62 billion. Bangladesh Bank has been buying dollars from the market to maintain the positive flow of export and remittance earnings.

It has bought $3 billion until Feb 11 of the current fiscal, a move which have kept the exchange rate stable for almost a year.

“In one way, it’s good. If the central bank would not have done it then the earnings from export and remittance would have suffered,” said Bakht.