A second line of credit from India worth $2bn is likely to be finalised in August, as Bangladeshi officials meet to work out the terms of the loan contract, described by some officials as “harsh.”
The Export-Import Bank of India (Exim Bank), which will extend the loan, proposes to invest in seven sectors, namely, power, railways, road transportation, information and communication technology, shipping, health and technical education.
An inter-ministerial meeting has been called by Bangladesh’s Economic Relations Division (ERD) on August 2 to review the “harsh conditions” set by Exim Bank and to prepare for negotiations with the Indian side, an ERD official, asking not to be named, said.
ERD Additional Secretary Mohammad Asif-uz-Zaman is likely to preside over the meeting, the official said.
The ERD official said the $2 billion loan contract would be signed with India’s Exim Bank within the next two months. The Indian and Bangladeshi governments have signed a memorandum of understanding in this regard.
According to the draft loan agreement, the contract will be signed between the government of Bangladesh and the Export-Import Bank of India.
The proposed interest rate for the dollar-denominated line of credit is 1% per year, but in the event of default, the interest rate will increase to 2% per year. The proposed commitment fee for the credit line is 0.5% per year, according to the draft agreement.
Under the proposed agreement, goods and services, including consultancy services, worth at least 75% of the contract price must be supplied by Indian firms, but will be procured by Bangladesh. The remaining 25% of goods and services to be procured by Bangladesh must have Indian consent.
Procurements will be made via competitive bidding and will be publicised in the local and Indian press, but India’s Exim Bank will approve Indian bids. Moreover, the Export-Import Bank of India will not be held liable for the cancellation or suspension of the procurement of any good or service, according to the draft agreement.
Bangladeshi authorities will inspect the goods and services and will submit a status report on the execution of each contract every six months until the contracts are fulfilled.
A Finance Division official said if the Indian side invests in the two proposed economic zones at Bheramara and Mongla, the funds will be released quickly. But if the $2bn Indian credit line is invested in an assortment of development projects, disbursements will take longer.
Before the Eid-ul-Fitr holidays, Indian High Commissioner Pankaj Saran visited the proposed economic zones at Bheramara and Mongla and spoke about the construction of connecting roads and development infrastructure there, the finance official, speaking on condition of anonymity, said.
The finance official said the Indian credit line had not been included in this year’s budget allocation.
India provided Bangladesh the first $1bn soft loan in 2010, during the tenure of former prime minister Manmohan Singh.