Rise in per capita income
WBs IDA interest rate to go up
JAGARAN CHAKMA
The World Bank (WB) is going to raise the interest rate on its International Development Association (IDA) loan for Bangladesh from the next fiscal year, thanks to a rise in the countrys per capita income to USD 1,465 in the last fiscal.
The WB informed Bangladesh about this decision and asked it to make preparations.
According to the letter of the Bank, Bangladesh will have to pay 2 per cent interest, instead of the existing 0.75 per cent, and the repayment period will come down to 30 years from 38, and the grace period to 5 years from six.
Bangladesh is ready to graduate from its current IDA-only status to the gap status since its gross national income (GNI) per capita crossed the USD 1,165-mark last fiscal year and is on course to repeating it this year too.
To continue to get loans at concessionary terms from the IDA, the arm of the World Bank Group, which hands out loans and grants to the worlds poorest developing countries, Bangladeshs GNI per capita has to be less than USD 1,165.
In 2015, Bangladesh graduated to the lower middle-income bracket with a per capita income of USD 1,190, as per the WB criteria. The per capita income has been ascending since.
The IDA-only cut-off in 2015 was more than USD 1,200 and so Bangladesh was still eligible for loans at concessionary interest rates.
As Bangladesh could manage to stay above the cut-off of USD 1,165 for two consecutive years, credits become expensive: the rate of interest on WB loans will jump from 1.25 per cent to 2.62 per cent in USD, while it will be 2 per cent in SDR (Special Drawing Rights) from 0.75 per cent.
The WB wrote that due to Bangladeshs improved economic performance, its GNI per capita exceeded the IDA operational threshold for two consecutive years in FY 17and FY 18.
Accordingly, Bangladesh can choose to request a creditworthiness assessment for IBRD lending anytime. If assessed as creditworthy, it would be classified as an IDA/IBRD blend country. Once classified as either gap or blend, Bangladesh will be subjected to IDA lending on blend terms.
If classified as creditworthy for IBRD, Bangladesh would then gain access to IBRD resources and a wider menu of WB group financial products.
The bank further said Bangladeshs eventual transition to gap and potential blend status is recognition that the country has achieved an important milestone in development.
The Bank also wrote to finance minister AMA Muhith: We look forward to discussing this further with you in the near future to ensure Bangladesh can make strategic use of available WB group resources to meet its development needs. According to the Bangladesh Bureau of Statistics, the per capita income was
USD 1,465 in fiscal 2015-16 and the last fiscal year. As per the WBs own estimation, however, it was USD 1,330 and USD 1,480.
The service charge on IDA loans is 0.75 per cent. In addition, there is a 0.25 per cent front-end fee and 0.25 per cent commitment charge. The repayment period is 38 years, including a grace period of six years.
The WB informed the finance ministry, along with several others, about the impending changes in the terms and conditions of its loans last week.
Although the rate of interest on WB loans is increasing, it is still much lower than on other commercial loans.
Bangladesh gets the highest amount of loans from the WB among its multilateral and bilateral development partners. In the last several years, Bangladesh received more than USD 1 billion in loans annually from the WB.
Officials of the finance ministry said there is no alternative way for Bangladesh, as it is going to move into the group of middle-income countries and has achieved the capability to take high interest credit from the WB.
Besides, Bangladesh would automatically exit from concessional credit facilities of the IDA of WB due to the rising trend of the GNI over the years, they added.
