Summary:

The Multilateral Investment Guarantee Agency (MIGA) is considering providing guarantees for short-term trade finance facilities to Bangladesh for essential imports. The guarantee amount could range from $500 million to $1 billion. This move comes after the government was not interested in MIGA’s previous offer of a $1 billion guarantee at a 6% interest rate six months ago.

Content:

International commercial lenders have expressed interest in funding finance facilities that will be supported by guarantees from the World Bank’s Multilateral Investment Guarantee Agency (MIGA). These guarantees will help in obtaining US dollar liquidity for the import of essential commodities, including fuel oil. MIGA has already provided support to 12 projects in Bangladesh, seven of which are in the energy and manufacturing sectors, with a gross guarantee exposure of $1.03 billion as of July. The offer of additional guarantee for essential imports by MIGA is seen as a great relief amid the current shortage of dollars that is delaying payment even of fuel import bills, according to independent economists and officials of the Economic Relations Division.

According to an ERD official, if MIGA guarantees the loan, it will be available at a lower interest rate. This will reduce credit risk and increase the confidence of suppliers. Additionally, the import process will be expedited and improved. However, there are few institutions capable of guaranteeing large loans, so this is a significant advantage for the ERD. 

Bangladesh Bank Governor Abdur Rouf Talukder, Finance Division Secretary Md Khairuzzaman Mozumder, and ERD Secretary Sharifa Khan will participate in a meeting with the MIGA vice-president on the sidelines of the annual meeting of the World Bank and the International Monetary Fund (IMF) in Marrakech, Morocco on 10 October. 

Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said MIGA guarantee will have a positive effect on Bangladesh’s imports. Foreign banks will finance imports when they know that MIGA is the guarantor. This type of guarantee is essential to gain trust. MIGA offered a $1 billion guarantee for commodity imports for Bangladesh at 6% interest rate six months ago, but the government was not interested in the offer finding the interest rate higher at that time.

The interest rate of private sector foreign loans has increased to around 10%, including the SOFR interest rate of 5% plus a 4-5% spread. The Finance Division officials in Bangladesh expect more support from MIGA to encourage foreign direct investment in renewable energy, transmission grid, export industries, special economic zones, ports, and healthcare infrastructure. By 2040, Bangladesh has estimated that it will require $608 billion for its infrastructure needs, with 75% is planned to come from the private sector, as stated in the country’s 8th Five-year plan. ERD officials are of the opinion that MIGA has the opportunity to aid in fulfilling the development needs by attracting foreign investors with guarantees.

Picture and Article Sources: The Business Standard