Focus Writing | Forex Reserve: Infrastructure Development & Bangladesh | forex reserve of Bangladesh
Forex Reserves: Infrastructure development and Bangladesh The country's foreign exchange reserves now stand at over $44.02 billion due to the upward trend of remittance. During the Covid-19 situation, the country's foreign currency reserve increased alongside the reduction of other costs. The government has thought about the potential use of this foreign currency to move out from loan dependency rather than make instances of own financing or loan. Why Established BIDF?: The BIDF has been established with a view to taking funds from the foreign exchange reserves to work for the infrastructural development of the country. The annual investment target from this fund has been fixed at an amount equivalent to $2 billion. The Payra Port Authority is going to receive the first credit equivalent to Tk 54.17 billion (TK 5,417 crore) from the newly formed fund.
Tripartite agreement:
The Finance Division, the Payra Port Authority, and Sonali Bank signed a tripartite agreement to finance capital to Payra Port Authority through the newly established investment window under the central bank for using foreign exchange reserves in public development projects.
► First Project: According to the agreement, the Bangladesh Bank will give $650 million in foreign exchange to Sonali Bank at a 1% interest rate. Sonali Bank will loan it to the Payra Port Authority at 2% with a 10-year repayment period. The Payra Port Authority has to repay the loan in 40 installments between 2031 and 2041 including a grace period of three years at two percent interest (one percent for the Bangladesh Bank and the rest
for the Sonali Bank).
> Second Project: State-owned Agrani Bank has sent a proposal of northwest Power Generation Company Ltd. a government-owned entity, to Bangladesh Bank. Under the proposal, the power company is seeking $313 million for the second transmission line project from Payra.
The first-ever infrastructural development fund:
China, in particular, has invested around $1 trillion from its forex reserves of nearly $4 trillion in the Belt and Road Initiative. In 2009, the country formed the China Investment Corporation as a sovereign wealth fund transferring $70 billion from its forex reserves. However, in Bangladesh, the infrastructure sector has been suffering a lot due to fund shortages.
- Bangladesh is one of the highest remittance recipient countries in the world, but the current savings schemes of the country are not enough to attract non-resident Bangladeshis (NRB).
- Finance ministry officials said the newly-formed fund will gradually be used in financing profitable projects in other public sectors.
- The loans will have to be repaid with incomes from the projects after they come into operation.
- However, if the institution concerned fails to repay loans, the deficit will be met from the budget.
Infrastructure development and Bangladesh:
Bangladesh's recent economic development has been conspicuous. Gross domestic product (GDP) grew at an average rate of 7.0% per annum during 2012-2019. Bangladesh is on track to graduate from the United Nations' Least Developed Countries in 2026. Rapid economic growth has increased the demand for energy, transportation, and urban development. However, infrastructure development has yet to catch up, creating a bottleneck that prevents the economy from reaching its full potential. The World Economic Forum highlighted weaknesses in the enabling environment in the country, particularly with infrastructure. Significant weaknesses were noted in road infrastructure, train services, seaport services, and water utilities.
According to the government's 7th Five Year Plan (FY2016-FY2020), infrastructure finance needs to reach 4.2% of GDP per annum or about $14 billion (FY2019) to maintain the growth momentum.
Since FY2016, gross fixed capital investment consistently accounted for more than 30% of the government budget. Because of capacity constraints, many projects experienced implementation delays and cost overruns, resulting in reduced benefits from the projects.
More prominently, the Strategic Transport Plan 2015-2035 proposes five mass rapid transit systems, two bus rapid transit systems, three-ring roads, eight radial roads, and six expressways among others.
According to the Revised Power System Master Plan 2016, to meet up future demand and maintain reserve margin, the country's generation capacity needs to be increased by 74.5 gigawatts from 2020 to 2041. From 2017 to 2025, an average investment of $9-10 billion per annum is needed for aggregated generation, transmission, and related costs.
Inclusive development:
With the higher growth, inflation will come under control and mass people will get the benefits from this system. And the output of development will be everywhere in the country equally. Bangladesh has taken all the plans keeping eyes on that and this is how Bangladesh has emerged as a developing country.
Connectivity:
As it is now a global village, one cannot live here alone, and that's why Bangladesh has given permission to its neighboring countries like India, Nepal, and Bhutan to use its ports. If the silts that accumulated on the riverbeds for hundreds of years can be removed, their navigability will increase significantly, creating the scope for enhanced trade and commerce through riverways.
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