2024-04-06 04:35:29
Against three proposals for import of fuel oil and liquefied natural gas (LNG), a proposal to borrow Tk 249 crore from several international organizations has been approved. Sources of the Ministry of Finance have informed that this money will be spent on fuel oil import in the next fiscal year 2024-2025.
This loan proposal was approved in the ‘Standing Committee on Inflexible Loans’ meeting held in the Ministry of Finance recently. Finance Minister Abul Hasan Mahmud Ali presided over the meeting. Bangladesh Bank Governor, Finance Secretary and related officials were present in the meeting.
According to the sources of the meeting, among the three loan proposals, a loan of 210 million dollars will be taken from the Jeddah-based International Islamic Trade Finance Corporation (ITFC; a member institution of the Islamic Development Bank-IDB) for the import of fuel oil and LNG for the next fiscal year 2024-2025. The six-month loan will carry an interest rate of 1.8 percent at the dollar’s Secured Overnight Financing Rate (SOFR) plus an administration fee of 2.2 percent.
It is reported that the current SOFR stands at 5.3 percent. That’s 1 percent more than a year ago and nearly double what it was in 2022.
According to the sources of the meeting, the interest rates of banks and financial institutions worldwide are continuously increasing. Despite this, ITFC has agreed to give the loan at the same rate of interest as the previous loan as a result of the negotiations. However, this is higher than the interest rates on loans offered by the World Bank and ADB.
It is known that BPC has been buying fuel oil since 1997 with ITFC loan support. In this continuation, BPC has taken a loan of 1.4 billion dollars from ITFC for the import of fuel oil for the current financial year 2023-2024. Interest rates are similar to the new offer. From this loan, 820 million dollars have been spent till last February. The remaining $580 million will be spent on fuel oil imports in May and June. As a result, there is no money left for the import of fuel oil next July. According to the initial decision, Bangladesh Petroleum Corporation (BPC) and Bangladesh Oil-Gas and Mineral Resources Corporation (Petrobangla) will use this loan equally.
Another separate loan proposal of $100 million for LNG import was approved in the meeting. Under ITFC’s Syndicated Murabaha operation, Bangladesh Bank will lend 50 million dollars as a co-financier in this loan. The interest rate is similar to the first one.
In addition, the meeting approved a separate loan proposal of 289.5 million 20 thousand dollars from the Islamic Development Bank (IDB) for the implementation of the housing project (second phase) of the low and low-middle class population in rural and urban areas of the country. Bangladesh House Building Finance Corporation will implement the project.
Earlier, during the budget of the current financial year, the finance department said that the high interest rate of domestic and foreign loans is increasing the borrowing cost of the government. The Ministry of Finance sees it as a challenge in the government’s financial system.
It was also said that another challenge in the government’s financial system is the high interest rates in both the domestic and international markets, which are increasing the government’s borrowing costs. This situation will become more challenging in the medium term due to the increasing demand for infrastructure, social protection systems and other development targets of the government.
This apprehension was expressed in the macroeconomic policy statement made by the finance department. According to a projection of the finance department, the interest cost of the loan taken to implement the budget is going to increase almost twice in the span of six years. Among these, interest on foreign loans will increase the most. This cost growth rate is more than 4 times. On the other hand, interest expenditure from the country’s domestic sector will almost double.