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Tuesday, October 24, 2017

WB loan interest to jump from 0.75pc to 2pc

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Bangladesh will have to pay higher interest rates for taking loans from the International Development Association (IDA) of the World Bank from the next year.

The World Bank Country Director for Bangladesh, Bhutan and Nepal Qimiao Fan has recently informed Bangladesh about this development and requested the government to make necessary preparations.

In a recent letter sent to Finance Minister AMA Muhith, Fan said due to Bangladesh's improved economic performance its GNI per capita exceeded the IDA operational threshold for two consecutive years in FY 17and FY 18.

According to the letter, Bangladesh from the next fiscal year will have to pay 2 percent interest instead of the existing 0.75 percent while the repayment period will come down to 30 years from 38, with the grace period shrinking to 5 years from 6.

Bangladesh is ready to graduate from its current 'IDA-only' status to the 'gap' status since its gross national income (GNI) per capita crossed the $ 1,165-mark to $1,190 in the last fiscal year against the IDA operational cutoff of $1,185 and is on course to repeating it this year.

To continue to get loans from the IDA, the concessionary arm of the World Bank Group, which hands out loans and grants to the world's poorest developing countries, Bangladesh's GNI per capita has to be less than $ 1,165.

As Bangladesh could manage to stay above the cut-off of $ 1,165 for two consecutive years, credits become expensive: the rate of interest on WB loans will jump from 1.25 percent to 2.62 percent in USD, while it will be 2 percent in SDR (Special Drawing Rights) from 0.75 percent.

Accordingly, Bangladesh can choose to request a creditworthiness assessment for IBRD lending anytime.

If assessed as creditworthy, it would be classified as an IDA/IBRD blend country. Once classified as either 'gap' or 'blend', Bangladesh will be subjected to IDA lending on 'blend' terms.

If classified as creditworthy for IBRD, Bangladesh would then gain access to IBRD resources and a wider menu of WB group financial products.

The bank further said Bangladesh's eventual transition to 'gap' and potential 'blend' status is recognition that the country has achieved an important milestone in development.

The other countries in South Asia have followed similar transition paths, such as India and Sri Lanka, who are IDA Graduates and Pakistan, which is an IDA blend Country.

According to the Bangladesh Bureau of Statistics, the per capita income was $ 1,465 in fiscal 2015-16 and $1,602 in the last fiscal year. As per the WB's own estimation, however, it was $ 1,330 and $ 1,480 respectively.

The service charge on IDA loans is 0.75 percent. Besides, there is a 0.25 percent front-end fee and 0.25 percent commitment charge. The repayment period is 38 years, including a grace period of six years.


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