NDB is keen to lend Bangladesh over $1bn annually. Can Bangladesh avail it?

The New Development Bank (NDB), formerly known as the BRICS Development Bank, is keen to invest in Bangladesh's public and private sectors that have been growing impressively for years, its Director General for the Indian regional office D J Pandian said in an interview with The Business Standard in Dhaka recently.

"We have already started working on a big project to improve water supply systems in Dhaka. We are planning to lend $235 million for this project," he added. 

Although the multilateral development bank established by the Brics countries – Brazil, Russia, India, China, and South Africa – has been in operation for seven years, it is entering Bangladesh with the project. 

The Bangladesh government is in discussions with the NDB for projects in the renewable energy and infrastructure development sectors. "The New Development Bank is happy to look into the opportunities. We want to lend Bangladesh at least $1 billion a year," the director general said, noting that the country will need long-term financing on a regular basis to develop infrastructure and so on.

Prior to joining the NDB, Pandian served the Asian Infrastructure Investment Bank as the vice president and chief investment officer and the Indian government as a bureaucrat.

He said the NDB is also interested in working closely with Bangladesh's private sectors in two ways. One is providing loans and directly engaging in important private-sector projects. "If a project and its promoters are good, and risks are reasonable, we can definitely step in. We can also provide equity through private equity funds."

The second way the NDB can provide assistance to the private sector is by extending a line of credit to existing banks in Bangladesh. "They [local banks] will assess the risk, and together we can provide loans."

On the challenges, the senior NDB official said, "As we are just entering Bangladesh for the first time this year, it is crucial to understand the economy, the people, and the business climate. We need to recruit appropriate manpower from Bangladesh, which can enlarge our knowledge base and better serve the country"

Another challenge the development partner may face is policy constraints. "If the government policies are good, our journey will be easier," said Pandian.

On priority sectors, he says the NDB does not have any specific priority, but the Bank can provide finance to all infrastructure sectors, including road, bridge, port, railways, and water supply development. "However, it is crucial that these projects are climate resilient, since Bangladesh is vulnerable to the effects of climate change."

The country also has two important borders – one with India and the other with Myanmar. "The NDB can support developing connectivity to India, but we cannot do that for improving connectivity to Myanmar as it is not our member country."

"The scope for connectivity, however, is not limited to roads. It also includes digital connectivity, electricity transmission and others. If any private sector or government comes forward with projects related to digital connectivity, electricity connectivity, or road connectivity, the NDB can definitely look into them."

Regarding the Bangladesh economy, he is pleased to see that it is continuously growing. "Many see it as an economy of miracles. Despite the slowdown in other parts of the world, Bangladesh is still growing. The 7% growth is a result of the efforts and proper policies of the government."

"We must congratulate the government of Bangladesh for their forward-looking and growth-oriented policies that are inclusive," he said and added that the recent Bangladesh Business Summit was a great initiative. "The summit brought together people from different parts of the world. Continuing such events can attract much more foreign investments to Bangladesh in the days to come."

Bangladesh moves slowly to avail NDB loans

The multilateral bank has a target of disbursing $30 billion in five years, starting from 2022. Bangladesh became its member in 2021 but has been in a slow move to avail these loans due to laxity in preparing project proposals, several government officials familiar with the matter told The Business Standard.

The officials wished to remain unnamed as they are not authorised to talk to the media.

The country has so far submitted only a preliminary proposal for a water supply project worth $235 million in Dhaka, they said, and noted that discussions, however, are taking place with the NDB to secure loans for an additional five projects, totalling $1.28 billion. 

According to a bridge department official, preliminary discussions have already been held with the lender regarding the construction of the Payra Bridge and the Bishkhali Bridge, for which a loan of $978 million has been requested.

Other proposed projects include a water supply project in Rajshahi for $83 million, a 120MW solar power plant at Raipura for $115 million, and power distribution in the Northern Electricity Supply Company (NESCO) area for $112 million.

Bangladesh is at risk of missing out on funds ranging from $3 billion to $5 billion available from the bank as delays in submitting preliminary proposals will reduce the country's chance of availing the loans in the next five years, according to an official of the Economic Relations Division.

Experts have identified a lack of capacity to formulate bankable development projects as a major obstacle. Ministries and divisions are not interested in development schemes financed by the NDB since the bank does not assist in preparing proposals and reports, unlike the World Bank or the Asian Development Bank.

The government is yet to finalise the draft law for the NDB financing, which will enable Brics bank-funded projects to avail some tax waivers. The draft is now awaiting Cabinet Division approval. The New Development Bank can be a new large funding source for Bangladesh alongside the World Bank, Asian Development Bank, and Asian Infrastructure Investment Bank, if proper measures are taken, experts believe.

In the 2017-21 period, the bank approved over $29 billion in loans to 74 projects in Russia, India, China, and South Africa. The bank will disburse another $30 billion in the 2022-2026 period, according to its new five-year lending strategy.

The NDB offers loans with floating interest rates ranging from the Secured Overnight Financing Rate (SOFR)+1.30% to SOFR+1.65%, with a front-end fee of 0.25% and a commitment fee of 0.65%. In contrast, the Asian Infrastructure Investment Bank offers loans at SOFR+0.79% to SOFR+1.29%, with a front-end fee of 0.25% and a commitment fee of 0.65%.