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Large projects

Costly foreign loans to invite worse impact

By Special Correspondent
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Economists have expressed concern over the government's appetite  on expensive foreign borrowings for funding mega projects saying that such costly overseas loans will increase the burden on national exchequer on account of debt servicing.
The committee on non-consessional loan has recently given the clean chit to the government over the highly expensive foreign commercial borrowings equivalent to Tk 94,000 crore for developing Rooppur Nuclear Power Plant, Bangabandhu Satellite and 400MW Ashuganj Power Plant.
The loan repayment period is 15-20 years, the grace period is 5-10 years, and the interest rate is 2.0-4.0 per cent (LIBOR plus other charges).
"I do not see the justification in taking this type of hard loans by the government when many doubt cost benefit of the projects," Dr Ahsan H Monsoor, a leading economist of the country told The New Nation on Sunday.
"As the Rooppur Atomic Power Plant and Bangabandhu Satellite launching projects lack economic viability and cost benefit, the nation would have to pay heavily for the costly foreign borrowings to implement these projects", he warned.
 Terming the Rooppur Nuclear Power Plant a 'controversial' project, Dr Ahsan Monsur said, "The government will have to make huge capital investment amounting to US$ 12.65 billion for developing the project. Russia will finance 90 per cent of the total project cost as hard term credit. It's a huge project having lengthy implementation process with expensive borrowing norms. All these can inflict huge financial 'distress costs' on Bangladesh economy."      Instead of taking up the project, Dr Mansur said, the government should mobilize such a large amount of capital to implement productive sectors having immediate economic benefit within a short period.
"Costly foreign commercial loans will push up the debt servicing liability of the national exchequer and increase the government's external debt burden as such borrowings are three to four times costlier than G-to-G loans and those from multilateral lending agencies," Dr AB Mirza Azizul Islam, another leading economist of the country, told The New Nation on Sunday.
The government has opted for such commercial borrowing mainly due to   multilateral donors' apathy in financing these projects. Donors may not show interest into the project financing taking into account their economic viability.
When asked, Mirza Aziz said commercial borrowing from foreign lenders could turn sour if the country fails to replay the loans timely and the government fails to implement the project within the scheduled timeframe.
"Default should also be averted through prudent economic management", he said
As on December 31, 2015, the country's external debt was US$ 23.50 billion and more than 75 per cent of the external debt was on concessional terms.

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