Padma funding won’t affect forex reserves: Experts

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Experts rule out the possibility of forex reserves coming under pressure if used to finance the Padma bridge project.
The US$ 2.91 billion project was supposed to be funded by the World Bank (WB) along with JICA, ADB and IDB.
But it ran into trouble after the lead financer World Bank raised the stink of corruption and told the Bangladesh government it would pull out of the project.
The other financiers also pulled out.
China and Malaysia offered to fund what would be Bangladesh’s most ambitious infrastructure project to date.
But, buoyed by rising foreign exchange reserves, the government decided to fund the project from its own resources.
When the Bangladesh Bank said it would provide the foreign exchange requirement for the project, the BNP alleged that it would create pressure on the forex reserves and hit the economy hard.
Bangladesh does not need to use its reserves to fund the project, according to economist Zaid Bakht, a research director with the Bangladesh Institute of Development Studies (BIDS).
The chief of Bangladesh Bank’s treasury management wing Quazi Saidur Rahman dismissed BNP’s fears and said there was no need to use Bangladesh’s forex reserves to fund the project.
On Wednesday, the forex reserves stood at an all-time high of US$ 18.62 billion.
The projected cost for the Padma Bridge is US$ 2.91 billion.
Between US$ 1.8 billion to 2 billion is estimated to be required for meeting the cost of procurement of materials from outside the country.
“The fund will be needed in phases spread over 4 to 5 years. In a year we might need US$ 100 million then in another year it may be 200 million. But, under any circumstances we would not need more than US$ 500 million in a single year,” said Bakht, the research director of BIDS.
Media reports had suggested that the Bangladesh Bank would be eating into the forex reserves to finance the Padma bridge.
The BNP had sharply reacted and alleged it would ruin the economy.
“The government’s decision to fund the Padma bridge from the reserves is not a wise one. This will hamper the country’s development,” said the party’s Vice-Chairman Abdullah Al Noman.
“This is totally false. There’s no way to use the reserves in any other sector…the criticism is baseless. Many are commenting without any understanding of the matter, while some other are raising an alarm even after being aware of the entire issue,” said Bangladesh Bank official Quazi Saidur Rahman.
Reserves have been growing for the last few years due to remittance.
“It’s increasing every day. Wednesday’s reserves (US$ 18.62b) were enough to clear import bills of seven months,” said Rahman, who heads the treasury management wing of the central bank.
Experts suggest that the surplus should be used in sectors like infrastructure development which would gradually help to augment investments.
Bangladesh will not have to use its reserves to fund the requirement every year rather the bank which will open the government’s LC for overseas procurement will be able to buy the foreign currency from the money market, according to economist Zaid Bakht.
The banks will be able to provide the US$ 2 billion in 4 to 5 years, said central bank official Rahman.
Bangladesh Bank has been buying US dollars from the market to maintain the positive flow of export and remittance earnings.
It has bought US$3 billion until Feb 11 of the current fiscal, a move which have kept the exchange rate stable for almost a year.