Bangladesh will have to pay higher interest rates for taking loans from the International Development Association (IDA) of the World Bank as Bangladesh will be classified as an ‘IDA gap’ country by the lending agency 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.
“In the event that Bangladesh’s GNI per capita exceeds the operational threshold for the 3rd consecutive year, the country will be classified as an ‘IDA gap’ country starting in FY19 and will be subjected to IDA lending on blend terms,” wrote the World Bank Country Director in the letter.
According to the letter, Bangladesh from the next fiscal year will have to pay 2% interest instead of the existing 0.75% 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.
In 2015, Bangladesh graduated to the lower middle-income bracket with a per capita income of $1,190, as per the World Bank criteria. The per capita income has been increasing since.
The ‘IDA-only’ cut-off in 2015 was more than $1,200 and so Bangladesh was still eligible for loans at concessionary interest rates.
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 World Bank loans will jump from 1.25% to 2.62% in USD, while it will be 2% in SDR (Special Drawing Rights) from 0.75%.
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 World Bank 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.
The Bank also wrote to AMA Muhith, “We look forward to discussing this further with you in the near future to ensure Bangladesh can make strategic use of available World Bank group resources to meet its development needs."
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 World Bank's own estimation, however, it was $1,330 and $1,480 respectively.
The service charge on IDA loans is 0.75%. Besides, there is a 0.25% front-end fee and 0.25% commitment charge. The repayment period is 38 years, including a grace period of six years.
Although the rate of interest on World Bank loans is increasing, it is still much lower than on other commercial loans.
Bangladesh gets the highest amount of loans from the World Bank among its multilateral and bilateral development partners. In the last several years, Bangladesh received more than $1bn in loans annually from the World Bank.