Bangladesh Bank to lend $200m to Maldives

After Sri Lanka, the Bangladesh Bank is now going to lend $200 million to another country, the Maldives.

Maldives President Ibrahim Mohamed Solih sought the loan in March this year when he visited Bangladesh to join Father of the Nation Bangabandhu Sheikh Mujibur Rahman's birth centenary celebrations and Bangladesh's Golden Jubilee of Independence.

The foreign ministry discussed the proposal with top managers of the Bangladesh Bank.

Though no official proposal has been made yet by the Maldives, the central bank is positive about the lending, according to a top manager of the Bangladesh Bank.

The Bangladesh Bank has the capacity to lend the amount, said Governor Fazle Kabir.

Though the reserve remains under pressure amid rising import expenditure, the governor sees the loan  to the Maldives as a moment of pride for Bangladesh, which was once  termed a basket case.

The Maldives, the tourist-centric country which was badly affected by the pandemic due to travel bans, sought the loan for five years, according to the central bank source.

However, the central bank has not finalised the modality of the loan.

Earlier in July this year, the Bangladesh Bank for the first time became a lender by providing a loan to Sri Lanka to support liquidity to its debt-ridden economy. 

The Bangladesh Bank lent a total of $200 million to the country under a currency swap deal.

Though Sri Lanka declared an economic emergency amid a serious scarcity of foreign reserves, it had been servicing interest regularly against the loan from Bangladesh.
Sri Lanka was given the loan for one year with quarterly renewals. 

The foreign reserve of Sri Lanka continued to deteriorate, compelling the country to announce an economic emergency recently. 

After meeting a $1 billion debt repayment in July from its reserves, the Sri Lankan government had only enough dollars to cover less than two months of imports.

The spiraling crisis in Sri Lanka raised the risk for Bangladesh about getting back its loan. 

Amid this situation, the Bangladesh Bank is going to green light a loan to the Maldives. 

Lending to both Sri Lanka and Maldives is a political decision, said central bankers. 

High foreign exchange reserves prompted the central bank to make such a high-risk investment, said a senior executive of the bank.

Moreover, the lending amount is very insignificant as the Bangladesh Bank usually sells more than $200 million to any state bank in a single day, he said. 

The country's foreign exchange reserve stood at nearly $45 billion on 24 November after hitting the $48 billion mark in August, according to Bangladesh Bank data. 

Huge selling pressure of dollars to keep exchange rates stable eroded the foreign exchange reserves. 

The Bangladesh Bank has sold around $2.1 billion to commercial banks since August. 

Import expenditure surged by 52% in the July-October period of the current fiscal year when the growth was negative during the pandemic period.