Shamsul Huq Zahid
Never before were there hullabaloos, controversies and blame-game of such high-pitch order involving any development project in the country as are now being noticed in the case of the Padma Bridge.

It appears that there is only one issue of utmost national concern, i.e. troubles with Padma Bridge construction. Even the main opposition political party is talking more on Padma Bridge than other important issues, including those of high commodity prices, power tariff hike and poor conditions of roads and highways, all of which have been hurting the common man.

However, since the World Bank (WB) brought allegation of graft in the Padma Bridge bidding late last year, the government leaders, big and small, have been talking endlessly, and also in different tunes. Many tend to blame, to a great extent, the talkativeness on the part of a section of government leaders for creating a lot of problems in relation to financing of Padma Bridge project.

Now with the prospect of securing soft loans for the Padma Bridge construction becoming slimmer even after the belated move to address the graft allegation, the government has again started talking loudly about building the bridge with ‘own resources’.

Notwithstanding almost no chance of its revival, the funding by the World Bank (WB) for the construction of the Padma Bridge still remains to be the best option, in terms of cost of foreign currency financing. None would, possibly, contest this fact.

The issue here is not domestic or external financing of the Padma Bridge project. What are critical issues for Bangladesh are financing the project, which has high import content, in foreign currency and which of the foreign financing sources would offer the least cost option.

The foreign financing options that have been in discussion include soft-loan providers like the WB, Asian Development Bank, Japan International Cooperation Agency (JICA), Islamic Development Bank, suppliers’ credit from Malaysia and issuance of sovereign bonds by the government itself.

The first 10 years of WB credit that has been cancelled carried only 0.75 per cent service charge and 40 years maturity period, including a grace period of 10 years, meaning that the country would not be required to pay any amount during the first 10 years.

During the next 10 years, the country would have repaid 2.0 per cent of the borrowed amount every year and for the remaining 20 years 4.0 per cent of the original amount every year.

Therefore, the yearly payment on the part of Bangladesh in the second 10-year period would have been $33 million, including $9.0 million service charge. During the remaining 20 years, the annual payment is estimated at $57 million, including $9.0 million in service charge. Thus, the total service charge on account of borrowing from the WB would have been $270 million paid over a period of 40 years, according to sources.

Under the much-hyped domestic financing option, the Bangladesh Bank (BB) could provide long-term foreign currency loan to the government, repayable in local currency or the government could buy the foreign exchange from the BB using taka resources mobilised through levying of surcharge, relocation of annual development programme (ADP) and donations.

However the issue here is not how government obtains foreign currency locally. The moot question is: Can Bangladesh draw down its reserves, which is not enough even to finance its three months’ imports. Besides, one cannot ignore the bleak export growth prospects because of eurozone crisis.

If the government mobilises foreign currency loans, equivalent to $1.8 billion that the WB and the ADB had pledged to provide for Padma Bridge construction, through sovereign bonds, it would be required to pay an annual rate of interest between 8.0-10 per cent and maturity period of the loans could be either 5 years or 7 years.

The annual cost of a five-year maturity loan ($1.8 billion) carrying an interest rate of 8 per cent would be $455 million and in the case of seven-year maturity the cost will be $349 million. And in the case of 10 per cent interest rate, the annual cost will be $479 million and $373 million for 5-year maturity and 7-year maturity respectively.

However, if the government goes ahead with its planned $750 million borrowing through sovereign bonds, the annual cost would be between $144 million and $198 million, depending on the rate of interest and maturity period of the loans. The additional fiscal cost of such borrowing in the event of depreciation of taka also needs to be taken into cognizance.

But the question is, can Bangladesh afford this cost given its current annual rate of debt service payments and external reserve position? In 2011, the debt service payment amounted to $739 million.

Who does not want his or her country build its proud projects with own resources? But while aspiring so, one need not be a pure jingoist overlooking the ground realities.

zahidmar10@gmail.com

thefinancialexpress