The government has decided to increase the grant elements of non-concessional loan to ease the risk of debt burden of Bangladesh.
According to the Economic Relations Division (ERD) proposal, the government is considering new non-concessional loan amount as its grant element to fix below 35%, which will be placed on the standing committee on non-concessional loan for approval. At present, the amount of non-concessional loan as grant element was above 25%.
The grant element threshold was fixed by the International Monetary Fund’s extended credit facility (ECF) agreement, which ended last year.
The grant element is defined as the difference between its nominal value (face value) and the sum of discounted future debt-service payments (net present value) to be made by the borrower expressed as a percentage of the face value of the loan.
Former finance adviser Mirza Azizul Islam told the Dhaka Tribune that it would not bring any good if grant element is increased. “Rather, the government should focus on interest rate and maturity period for the payment of loan in reducing risk of debt burden.”
ERD officials said the proposal of new calculation of non-concessional loan will be placed on the cabinet committee on economic affairs for approval on Wednesday.
“The debt burden of the country will increase as the hard-term or non-concessional borrowing entails higher interest and less maturity period,” said an official asking not be named. “As a result, we have proposed to increase grant element to ease the risk of debt burden.”
As of this month, the government will be able to borrow up to $5.75 billion as hard-term loans from external sources upon fulfilling various conditions of the International Monetary Fund under the ECF.