The government has decided to consider foreign loans as hard-term ones if the grant element is less than 25 percent, down from the 35 percent it currently takes into account, in a reflection of the country’s growing economic power.
The revision, which saw a cut of the upper ceiling by 10 percentage points, came at the behest of World Bank and other development and bilateral lenders, according to Finance Minister AHM Mustafa Kamal and a government document.
The minister said Bangladesh used to look at the grant element before taking any concessional loan and it was 35 percent.
“Now, the amount is being brought down to 25 percent,” he told reporters after the weekly meeting of the cabinet committee on economic affairs at the secretariat.
The cabinet committee approved the revision put forward by Economic Relations Division on behalf of the standing committee on non-concessional loans.
As Bangladesh has graduated from a lower income country category, various multilateral and bilateral lenders have raised the interest rate for loans given to the country, according to the proposal of the standing committee.
As a result, the loans are becoming non-concessional and permissions are needed from the standing committee. This may create the uncertainty that flow of foreign loans might slow down.
The Organisation for Economic Co-operation and Development also considers a loan as non-concessional one if the grant element is less than 25 percent, the proposal said.
Talking about the necessity of bringing down the threshold, Kamal said, “This has been done because our economic condition has improved. We were a least developed country. Now we have reached a new height.”
“As everyone has said that the condition of Bangladesh is good and the country has graduated from one level to the next level, the amount is being brought down to 25 percent from 35 percent.”
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