Bangladesh Bank has assured the Padma bridge project authorities of providing $2,035 million in the next four years through different packages to meet the need for foreign funds to construct the bridge.
Governor Dr Atiur Rahman gave the foreign contractors of the project the assurance through the Bridges Division at a meeting at the finance ministry early this month.
Economists, however, say the central bank has no authority to use the foreign reserve in the construction of the Padma bridge because the reserve is meant for the payment of imports.
They say the foreign exchange reserve will not comfort the government in future because of slide in remittance and raise in import bill. As a result, the position of balance payment might go down to a negative value.
They also predict that the dollar will become dearer because of the diversion of foreign reserve to the Padma bridge project.
Dr Atiur said the central bank was financially sound to supply the amount in phases from its own fund; otherwise, it would purchase foreign currency from the inter-bank market.
“If Bangladesh Bank fails to provide foreign currency from its own fund, it will buy foreign currency from commercial banks,” a recent letter of the governor sent to Finance Minister AMA Muhith reads.
The governor asked the finance minister to take necessary measures according to the contracts between the Bridges Division and the foreign contractors.
The meeting on payment of foreign currency to foreign firms decided to avoid lingering of payment and that the Bangladesh Bank general manager would handle the payment issue.
The central bank suggested that the banks of these foreign firms should submit letters of comfort to Bangladesh Bank for payment approval. The Bridges Division will issue the letter of comfort to expedite the payments, the letter says.
In the current fiscal year, the government has allocated Tk4,886.40 crore to meet the demand for foreign currency for the construction of the Padma bridge.
According to the letter to the finance minister, the allocation of the foreign funds are: $200m in 2014, $700m in2015, $600m in 2016, $500m in 2017 and $100m in2018.
Dr AB Mirza Azizul Islam, then adviser to the last caretaker government, said the country’s balance of payment would face tremendous pressure in near future because of the government decision to use foreign reserve for the construction of the Padma bridge.
Decline in remittance and raise in import bills would definitely affect the reserve as well as balance of payment negatively, he said.
Zaid Bakht, research director of Bangladesh Institute of Development Studies, said the Bangladesh Bank had no authority to use the foreign reserve for constructing the Padma bridge as it was deposited against import bills.
“How will the government manage the import bill when the fund is diverted to the Padma bridge project?” he said.
Zaid also said US dollar might become dearer in local market and as a result the import bill would be suddenly soaring high in future.
Talking to the Dhaka Tribune, Dr Khondaker Golam Moazzem, additional research director of the Centre for Policy Dialogue, questioned the step-by-step procedure of paying the foreign contractors – if they would be convinced about it.
The government would also be under tremendous pressure regarding maintaining the quality as the foreign donors were not involved in the financial and technical processes of the construction of the Padma bridge, he said.
Muhith last week gave hints – when textile millers sought assistance of foreign reserves to import capital machinery for new plants – that the government would use a portion of its foreign currency reserves for implementing the Padma bridge project.
The Padma bridge is among the six projects that are under the direct supervision of the Fast Track Project Monitoring Committee headed by Prime Minister Sheikh Hasina. It is the country’s first project to require more than $2 billion.
The government decided to fund the project on its own after the World Bank had cancelled its $1.2bn loans in 2012 on grounds of a corruption conspiracy over the appointment of the supervisory consultant.