How Bangladesh can borrow money from its foreign exchange reserves to finance development projects


Launching a sovereign wealth fund may be a potential way for the government to borrow money to finance development projects, experts say.

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

The prime minister launched the plan at the Ecnec meeting on Monday after foreign exchange reserves surpassed $ 36 billion to a record high.

When the World Bank pulled out of the project to build Bangladesh’s largest infrastructure, the Padma Bridge, the government considered taking out loans from foreign exchange reserves in 2015.

He had formed a committee to explore ways to borrow from the reserves, but the cyber-burglary in 2016 put an end to activities surrounding the plan.

“Most of the reserves are unused. After setting aside import costs for five to six months, the government can spend the rest, ”said Khondkar Ibrahim Khaled, former vice-governor of the central bank.

SOVEREIGN FUND

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

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

The committee had proposed a fund of $ 5 billion when the reserves stood at about $ 32 billion.

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

WARNINGS

The committee recommended funding government megaprojects or those under a public-private partnership, excluding PPP project sustainability gap funding, from the fund.

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

“We have to make sure that the money coming from the reserves will come back,” said Ibrahim Khaled.

Mansur said the government should also keep in mind that import costs could increase when the situation normalizes after the coronavirus pandemic. “This reserve will become very valuable at that time.”

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

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


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