Spending on infrastructure – highly dependent on the public sector – as a share of GDP is only 4% in Bangladesh, while such financing in neighbouring countries ranges between 5% and 10% of their economies.
To minimise the infrastructure financing gap, experts and business leaders suggest that the government go for a combination of public and private funding both from domestic and foreign sources for a long term.
At the last session of the weeklong Bangladesh Trade and Investment Summit held virtually on Sunday, they found short-term deposits as the major obstacle behind the failure in the timely completion of the Public Private Partnership projects in Bangladesh.
They also recommended strengthening the capital market, expanding the bond market and issuing bonds in the international market to meet the demand for infrastructure funding.
The commerce ministry and the Dhaka Chamber of Commerce and Industry (DCCI) organised the event titled "Bridging the infrastructure financing gap through credit solutions in Bangladesh".
Salman Fazlur Rahman, PM's private industry and investment adviser, at the event said the government allowed private investment in power generation, airline operation, television, telephone system, insurance, banking sector, universities, healthcare, and hospital services to boost the private sector and also meet people's demand.
The country achieved robust development in terms of reserve, exports, budget, GDP and per capita income. But a smooth strategy is required to uplift the country to the next level and innovative ideas are needed to finance not only infrastructure, but also for all other sectors, he added.
"Our banking system is in a fundamental distortion. They are using short-term deposits to finance long-term projects. Economy is growing, banking system deposits are growing at a very impressive rate. The effect of the mismatch is now not affecting the market, but it does not mean that it will not in the future," he said.
He recommended that the Bangladesh Bank maintain currency supply at a level that will not hamper businesses and create any risk of inflation.
"Huge growth and plenty of domestic currency will not ensure the complete wellbeing of the people. Depreciation of Taka will create pressure of inflation. That is why we need a balance between growth and exchange rate, the PM's adviser noted.
Stressing a strong regulation regarding investment in the capital market from the banking system, he said depositors' money should be safeguarded. All of it should not be invested in the capital market.
In his introductory remark, DCCI President Rizwan Rahman said substantial infrastructure is needed in Bangladesh to meet the future demand, but it is only 4% of the GDP based on the public investment, which is far lower than in neighbouring countries.
He said private sector participation is required to boost infrastructural development. Many important projects under the PPP model are struggling for financing owing to a lack of long-term alternative financing solutions.
"We need to leverage financing and engage the private sector for infrastructure development, reducing dependency on the national budget," he added.
Muhit Rahman, managing director & head of Financial Markets at Standard Chartered Bangladesh, said infrastructure projects require a 15-year financing on average and more time is needed in some cases.
The debt to GDP ratio is around 39% and it is around 17% for the external debt, which indicates ample opportunity for exploring the global market to avail foreign currency solutions, he also said.
The country is receiving soft loans from development partner countries as well as multilateral development institutions, but it will have to attract commercial loans, bonds, investments from global lenders and funds after it graduates to a developing country, he pointed out.
Nojibur Rahman, chairman at Capital Market Stabilisation Fund, said the government has huge development projects, and successful implementation of these projects will change the economy positively.
The implementation of the projects is dependent on long-term financing and partnership with financers, he added.
Recommending that the government reduce its dependence on the banking sector for infrastructure development, Dr Abul Kalam Azad, executive director at the Bangladesh Bank, said the government should enhance its capacity and concentrate more on the capital market for issuing long-term bonds.
Ala Ahmad, chief executive officer of MetLife Bangladesh, Ahsan Khan Chowdhury, chairman and CEO of PRAN-RFL Group, and Nuher Latif Khan, managing director of Technaf Solartech, also spoke on the occasion.