Tk10,000cr fund formed amid talks of contracting EDF

Highlights:

• The central bank has set up a new fund of Tk10,000 crore for exporters
• A central bank official said lending from the EDF has already been scaled back
• Exporters fear huge financial losses if they have to buy dollars to import raw materials after borrowing taka from the new fund
• Export-oriented companies will get Tk5 crore to Tk200 crore loans at 4% interest to procure raw materials  

Amid talks of contracting the existing $7 billion Export Development Fund (EDF), the government has created a new Tk10,000 crore fund for exporters.

Exporters fear huge financial losses if taking loans from the EDF are made difficult and they have to buy dollars to pay off import bills by borrowing money in taka from the newly formed Export Facilitation Fund (EFF). They also fear a "disaster" in some exporting sectors.

Central bank Executive Director and spokesperson Md Mezbaul Haque said last month that since there have been confusions about whether the EDF loans are a part of the forex reserve, the Bangladesh Bank wants to redesign the loan scheme for exporters a little differently.

Seeking anonymity, an official at the Bangladesh Bank has recently told TBS that lending from the EDF fund has already been scaled back.

"For example, if we now get back Tk10, we are then lending Tk8 max from the EDF. The remaining amount is being adjusted with the reserve," he added.

Mohammad Ali Khokon, president of the Bangladesh Textile Mills Association (BTMA), said, "If loans are given in taka instead of dollars, the textile sector may face a disaster due to the additional cost of buying the greenback."

"We used to get loans in dollars from the EDF and clear import payments in dollars, there was no problem. But now we will get a loan from the bank in taka, but if we want to pay the import bill in dollars, we have to pay 6% to 7% extra money," he added.

For an example, he said, "Let's say I get a loan of Tk100, but to buy $1 I have to spend Tk107. In this process, one has to count the loss of Tk7 crore to buy dollars equivalent to Tk100 crore."

Due to such differences between the taka and the dollar, textile mills who mainly used to import taking dollars as loans will have to incur losses of hundreds of crores of taka, he believes.

Another source of the BTMA said that they are reviewing the new circular of the government.

Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), said, "The new fund is a good initiative. But if the EDF is closed and loan is given in taka, then exporters will have to count a huge loss. In case of dollar purchase, the difference between buying and selling should not be more than Tk1."

During talks with the International Monetary Fund (IMF) over a prospective $4.5 billion loan, the central bank was asked not to count EDF loans while estimating the forex reserve.

Citing the IMF's explanation to that, a Bangladesh Bank official, seeking anonymity, said the 270 day repayment period for EDF loans means the central bank actually does not have the money in its hands during that time.

But an official at the relevant department of the central bank told TBS that this facility has been given to further increase the country's exports.

"It is not related to the EDF loan. If the central bank wants to reduce the EDF fund, it can do so through a separate circular," he added.

In a circular issued on Sunday, the Bangladesh Bank said that the Tk10,000 crore fund has been formed to give loans at low interest for the import and procurement of raw materials for production in the country's export-oriented industries.

All the scheduled banks in the country will be able to take advantage of this fund at only 1.5% interest, but the loan interest rate at the customer level will be 4%.

According to the circular, the fund has been set up to meet the future challenges of transitioning Bangladesh into a developing country as well as to develop the export-oriented industry against the prevailing global conditions.

Export-oriented companies will get EFF loans between Tk5 crore and Tk200 crore to procure raw materials from local and international sources, according to the circular.