The government plans to use the country’s foreign currency reserves to implement a $370.96 million power transmission project, ignoring warning from the International Monetary Fund (IMF).
State-run Agrani Bank has sent a proposal of North-West Power Generation Company Ltd (NWPGCL), a government-owned entity, to the Bangladesh Bank.
Under the proposal, the power company is seeking $313 million for the second transmission line project from Payra. The financing will be arranged by Agrani Bank.
Bangladesh-China Power Company, a joint venture of NWPGCL and China National Machinery Import and Export Corporation, will build a 400Kv double circuit transmission line, which will connect Payra, Gopalganj and Dhaka’s Aminbazar to supply electricity from Payra’s thermal power plant and potential future power plants.
The government is looking to turn Payra a major power generation hub. But the electricity to be produced at the hub can’t be supplied to other parts of the country on the basis of the existing transmission lines, said a Power Division official.
But the plan to use the foreign currency reserves comes amid warning from the IMF against using it for such projects.
“The decision to use the FX reserve windfall to finance “crucial” infrastructure projects through the newly created Bangladesh Infrastructure Development Fund (BIDF) raises governance and external sustainability concerns,” said the IMF.
It made the observations in a report submitted to the government after an IMF team visited Bangladesh from December 5 to December 19 last year.
In its first, the government approved to use 524.56 million euros from the reserves for a development project in March last year for the dredging of a channel for Payra Port, a seaport in Kalapara, Patuakhali.
The BB has so far disbursed 27 million euros for the project.
The BIDF was formed to make lending from the reserves to development projects. The annual investment target from the fund would be no more than $2 billion, according to finance ministry documents.
The BB has committed to financing the BIDF using the reserves for up to $2 billion per year for the next five years, on the condition that the reserves cover import payments for at least six months, project earnings are in foreign currencies, and a sovereign guarantee is provided.
The IMF said foreign currency reserves in Bangladesh are adequate and not excessive, and the recent peak in reserves is expected to be short-lived.
“Ad-hoc use of FX reserves could undermine fiscal discipline by exposing the public sector to large contingent liabilities and fiscal risks.”
Zaid Bakht, chairman of Agrani Bank and a noted economist, says every central bank makes some investment in safe areas after analysing risks so that money doesn’t sit idle.
“From that point of view, if there is a public sector project and if there is a guarantee from the government, then I don’t see any problem.”
The former…