How Bangladesh can borrow money from its forex reserves to fund development projects

Experts have welcomed the move but urged caution as the finance ministry and Bangladesh Bank are preparing to disburse loans to the government from foreign currency reserves at Sheikh Hasina’s bidding.

Launching a sovereign wealth fund can be a potential way for the government to borrow the money to fund development projects, according to the experts.

They say the government must be vigilant in spending the fund and choose the projects carefully.

The prime minister floated the plan in Monday’s Ecnec meeting after the foreign exchange reserves crossed $36 billion to reach a record high.

When the World Bank had withdrawn from the project to construct Bangladesh’s largest infrastructure Padma Bridge, the government had mulled taking loans from the foreign currency reserves in 2015.

It had formed a committee to explore ways to borrow from the reserves, but the cyber heist in 2016 put a halt to the activities surrounding the plan.

“Most of the reserves lay idle. After setting aside import costs of five to six months, the government can spend the rest,” said Khondkar Ibrahim Khaled, a former deputy governor of the central bank.

SOVEREIGN WEALTH FUND

Researcher Ahsan H Mansur, a member of the committee formed in 2015, believes forming a sovereign wealth fund or SWF is the only way to implement the plan to use the money from the reserves for development projects.

The size of the fund can be $5 billion to $7 billion, he told bdnews24.com.

The committee had proposed a $5 billion fund when the reserves stood around $32 billion.

“Now it’s $36 billion. The SWF can easily be formed,” Mansur said.

WARNINGS

The committee had recommended financing mega projects of the government or those under public-private partnership, excluding viability gap financing of PPP projects, from the fund.

It had also said the government should choose long-term projects that will surely stay profitable for a long time, and not social development projects.

“It must be ensured that the money going from the reserves will come back,” Ibrahim Khaled stressed.

Mansur said the government must also keep it in mind that import costs may increase when the situation normalises after the coronavirus pandemic. “This reserve will become very much valuable at that time.”

After paying May-June import bills to Asian Clearing Union on Tuesday, the foreign exchange reserves have dropped to $35.6 billion.

Mansur also suggested paying more attention to revenue collection in order to spend money on other purposes than imports and development projects amid the pandemic.