May 8, 2021

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Reserve means for big projects, good or bad

Discussions have been going on for some time, what is the benefit of keeping so much reserve? Can some parts not be used in large projects? Meanwhile, inaugurating the Bangladesh Infrastructure Development Fund, the Prime Minister said the rest of the money can be invested by keeping the import money for six months. This fund is for lending from the reserve with the guarantee of the government. This money will be spent only on development projects in Bangladesh. Investors will also be able to take loans from this fund. A maximum loan of কোটি 200 million a year will be given, the interest rate will be a maximum of 4 percent. Initially, government projects in the power and port sectors will be able to take money.

Pigeon port is getting money first. An agreement has been reached to give a loan of about five and a half thousand crore rupees to the port authorities. But there are questions about the viability of the pigeon port. Whether the reserve money investment in such projects will meet commercial interests is also a matter of consideration. In Bangladesh, a public sector company delays in giving money to another company. Many disputes between Bangladesh Biman, Bangladesh Petroleum Corporation, Capital Development Authority have gone to court in the past. One company of the power department does not want to pay the money due to another company. Remember, this is not money from the revenue sector. Its management will also be different.

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There is talk in some quarters about the risk of spending reserve money on development projects. Many development partners are also opposed to the use of reserve money in government projects. At the root of their opposition are lack of good governance and poor expenditure management. Economists say a new crisis could ensue if the right projects are not picked up and the money invested does not rise. Many again think that there are some limitations in the use of such funds. If there are questions about the use of funds, it will be difficult to get loans from donors in the future.

Some, however, say the decision is positive. Risk will depend on management skills. The increase in reserves also made it easier for us to get foreign loans. Keep in mind, one of the reasons for the reserve record is the decline in imports in Corona. It remains to be seen what the import demand will be in the post-Corona period.

The government says the loan will also be given to the private sector. How the private sector will take over and what kind of projects will be given will also have to be taken into consideration. The weakness of project managers in project selection, project cost management, project cost increase and monitoring is still a big problem in our country.

As mentioned earlier, this includes the challenges of transparency, institutional capacity and oversight. Even if working in the banking model, the standard of loan consideration should be global. Who will be given the money, whether it will be used properly, whether the money can be withdrawn হবে these must be strictly monitored. Otherwise, liabilities will increase, creating the risk of abuse.

On the other hand, if the project is not sustainable, if financial gains are not guaranteed, there is a risk of rising inflation. Although a small amount of money is being invested now, if the amount increases in the future and if it is not managed properly, there is a risk of a crisis like inflation or stability in the money market.

Like most, development projects should rely on the main banking channels. Reserve is the last option. The less used, the better.

If there is a problem with the use of reserve money then it will create problems for investment, which will also have a negative effect on those who send foreign currency.

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In our country, the project cost is not right yet, it has increased, there is a lot of corruption around the project. For example, the cost of the Padma Bridge is increasing. We think that more discipline should be brought in the implementation of the project. Care must be taken to ensure that the contractors do not take the government hostage. Care should also be taken that political considerations do not prevail in the recruitment of contract companies in Bangladesh.

It is also necessary to determine how the financial institutions involved in the project will help. In this case, political risk insurance, export credit agency, etc. must be considered. We brought USXim Bank here. I brought OPIC’s guarantee with some ERD officials. OPIC guaranteed that US company Elpaso was involved in the implementation of Khulna Power Company. Funding in the NAPC Power Consortium became much easier due to the OPIC guarantee.

The task of bringing Biman’s Boeing aircraft was made easier by giving matching guarantees to some banks operating in Bangladesh. This has increased the capacity of the banks, they have been able to finance, they have been able to earn some income, they have received some deposits from the airlines. Withdrawals were also made easier due to the guarantees of USXIM and OPIC.

Financing becomes much easier when political risk insurance, internal return rate, social, environmental, economic, people’s desired benefits, poverty alleviation, etc. are taken into consideration. It is now difficult to get funding for projects that are harmful to the environment. The Asian Development Bank says it will no longer finance coal-fired power projects. Many financial institutions in Britain and Europe say they will no longer fund such projects. Thus, the environment is becoming a major regulator in financing large projects.

Care should be taken so that the environment is not harmed, the cost of the project does not increase gradually and corruption does not occur. In addition, when financing from your own source, care must be taken at all times so that the cost of one project does not increase the loss of another project.

 

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