Govt creates infrastructure fund with forex reserves

The Bangladesh Infrastructure Development Fund (BIDF) – formed with a portion of forex reserves – has started its journey with the government having picked the Payra port first for financing from the new fund.

Prime Minister Sheikh Hasina inaugurated the new fund on Monday, under which $2 billion will be invested annually in different public development projects.

The Finance Division, the Payra Port Authority, and Sonali Bank signed a tripartite agreement on Monday to finance capital and maintenance dredging in the Ramnabad channel of the Payra Port through the newly-established investment window under the central bank for using foreign exchange reserves in public development projects.

Initially, projects under port and power sectors will get funds from the reserves and other profit-yielding projects will be added to the list gradually. Besides, private projects will also get loans from it after the fund size gets expanded.

The BIDF is the first of its kind in South Asia and the world.

According to the tripartite agreement, the Bangladesh Bank will give $650 million in foreign exchange to Sonali Bank at 1% interest rate. Sonali Bank will loan it to the Payra port authority at 2% with a 10-year repayment period.

Speaking on the occasion, Sheikh Hasina said, "As a developing country, we now have to get ahead on our own and run development works with our own financing to become a developed country. That is why we formed the BIDF."

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.

Mentioning that the fund is first of its kind in South Asia, Finance Division Secretary Abdur Rauf Talukder said earlier, the Bangladesh Bank had provided funds from forex reserves for the construction of the Padma Bridge with its own funds.

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 is not able to earn enough to repay loans, the deficit will be met from the budget.

They said there is a possibility of getting foreign loan at a comparatively low interest rate, but project implementation is often delayed owing to foreign dependence.

The BIDF fund will help implement projects on time which will speed up the country's economic activities.

The initial target has been set to raise $2 billion a year through the fund, but if the reserves increase, so will the fund size. There are plans to finance the private sector from the fund in the future. Prime Minister Sheikh Hasina has also indicated as much in her speech.

In this context, the prime minister said, "We have to set aside a portion from the foreign currency reserve to meet import bills of six months, so we can buy food when an unforeseen crisis arises. We can invest the rest of the money. That is why we have thought of setting up our own fund [BIDF]."

The current reserves amounting to $43 billion can meet up to eight-month's import bills.

Ahsan H Mansur, executive director of the Policy Research Institute, told The Business Standard that keeping a portion of the forex reserve for meeting six-month import bills and investing the rest in development activities is a positive decision. However, the amount of money to be transferred to the fund has to be deducted from the reserves.

He said the private sector can be included on the list for loans through the fund. But, if the private sector fails to repay the loan for any reason, it will create liability for the government. If the government invests 20% of foreign currency under its share in the projects being implemented under the public-private partnership, foreign investors will show more interest in these projects.

When the foreign exchange reserves rose to $36 billion in July last year, Prime Minister Sheikh Hasina directed to find ways to use it for infrastructure development. She then requested the finance ministry to prepare a guideline for investing the forex reserve only in profitable public projects.

The country's current foreign exchange reserve has also set a record, thanks to high growth in remittances amid the pandemic. On 24 February, the reserves crossed the $44 billion mark. As of 10 March, the reserve was around $43 billion.

Finance Minister AHM Mustafa Kamal, State Minister for Shipping Khalid Mahmud Chowdhury, and Bangladesh Bank Governor Fazle Kabir also spoke at the ceremony.

Senior Secretary of Finance Division Abdur Rouf Talukder made a presentation on the country's micro economy and the BIDF while Prime Minister's Principal Secretary Dr Ahmad Kaikaus moderated the function.