In a significant milestone for Bangladesh’s development landscape, the New Development Bank (NDB) is poised to extend its financial support to the country, offering loans worth a substantial $765 million early next year. This marks a historic moment as Bangladesh, for the first time, taps into the resources of the Shanghai-based multilateral lender to enhance its gas and water supply networks.
The loans are earmarked for vital improvements in Bangladesh’s gas and water supply networks. An anticipated $443 million will be allocated to Titas Gas Transmission and Distribution Company Limited to enhance its gas distribution network. Simultaneously, Dhaka Water Supply and Sewerage Authority (WASA) is set to receive $325 million to upgrade its water supply network in Dhaka and surrounding areas.
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In this context, Officials from the Economic Relations Division (ERD) have expressed optimism, stating that several NDB missions have engaged with high-ranking officials in Bangladesh. Anwar Hossain, Additional Secretary at the ERD, revealed that negotiations for the loans are expected to commence soon, with loan confirmation anticipated by the first quarter of 2024.
Project Details and Approval Process
The ERD officials anticipate the initial disbursement of $325 million for Dhaka WASA within the next 1-2 months. This loan is specifically designated to enhance the water supply network in Dhaka. Subsequently, the second loan of $440 million for Titas Gas’s distribution line improvement is expected to be confirmed by March next year.
Titas Gas officials highlight the imperative to replace approximately 2,700 km of pipelines to ensure a seamless gas supply. The project aims not only to improve the low-pressure situation but also to significantly reduce leakage-related accidents and methane emissions, aligning with broader environmental goals.
An NDB appraisal mission recently concluded its visit to Bangladesh, focused on finalizing the proposed $440 million loan for Titas Gas. ERD officials indicated that the loan proposal for Dhaka WASA is scheduled to be presented at the next NDB board meeting for approval.
Strategic Reduction of Dependence on Traditional Partners
Currently, the World Bank and ADB are key development partners for Bangladesh, with Japan standing out as the largest bilateral donor. The NDB’s financial support offers an opportunity for Bangladesh to reduce dependence on these existing partners, fostering greater financial independence.
In recent years, Bangladesh also has experienced support from the Asian Infrastructure Investment Bank (AIIB), and now, the NDB is stepping in as another crucial ally. The NDB’s involvement is not merely financial; it signifies a strategic shift for Bangladesh. This financial boost is part of the NDB’s $30 billion portfolio allocated for the period of 2022-2026. The country is poised to tap into the NDB’s $30 billion portfolio, providing an avenue for securing approximately $1.5 billion annually for development projects.
Importantly, this diversification aims to reduce Bangladesh’s reliance on traditional multilateral and bilateral development partners such as the World Bank, International Monetary Fund (IMF), and Asian Development Bank (ADB).
Loan Structure and Terms
Both loans follow a market-based structure, with the NDB charging at the Secured Overnight Financing Rate (SOFR) and adding a specific spread. Similar to the AIIB, the NDB offers loans with floating interest rates ranging from SOFR+1.30 percent to SOFR+1.65 percent. Additionally, a 0.25-percent front-end fee and a 0.65-percent commitment fee are applicable.
Bangladesh’s Inclusion Background In NDB
NDB’s expansion of membership aligns with the institution’s strategy to become the leading development entity for emerging market economies. Despite being outside the BRICS since its inception in 2015, Bangladesh has become the first country to join the bank.
The NDB Board of Governors, in late 2020, granted authorization for formal negotiations with potential members. Following initial talks with candidate countries, negotiations with Bangladesh, UAE, Uruguay, and Egypt continued, marking them as the initial group of countries admitted to the Bank.
The story of Bangladesh’s entry into the NDB carries interesting regional and geopolitical dynamics. An essential aspect is India’s role in supporting Bangladesh’s membership. During a virtual summit in December 2019, Indian Prime Minister Narendra Modi invited Bangladesh to join the Bank, receiving a positive response from Bangladesh Prime Minister Sheikh Hasina.
On September 2, 2021, the NDB announced the commencement of its membership expansion. Bangladesh was the first to deposit its instrument of accession, officially making it a full member with a subscribed capital of US$942 million (1.85 percent of the total). Bangladesh’s exercisable votes in the Bank’s boards amount to 1.88 percent. To accommodate Bangladesh’s membership, the capital shares of founding members were reduced, maintaining their dominance at 19.63 percent each. While UAE, Uruguay, and Egypt are also joining, Bangladesh secured assurances that its voting share would not fall below 1 percent.
According to Bangladesh news sources, a finance ministry official mentioned that out of the country’s total share in the Bank, US$188.4 million is paid-in capital, and the remaining US$753 million is authorized capital. The US$188.4 million paid-in capital will be deposited in seven installments over seven years, and the country can cover the remaining US$753 million through the purchase of NDB bonds if desired. These procedural norms, applying to all NDB members, were established by the founding BRICS members.
Before initiating the $188.4 million payment to the NDB, the government had to pass a relevant law and complete other domestic processes. With the commencement of instrument of accession deposits, Bangladesh gained access to NDB board meetings and became eligible for loans.
New Development Bank
The New Development Bank (NDB), was formed by BRICS (Brazil, Russia, India, China, and South Africa) in 2015. It was created by these member nations to raise funds for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries. This initiative complements the ongoing efforts of global multilateral and regional financial institutions dedicated to fostering growth and development. With an authorized capital of US$ 100 billion, open for subscription by United Nations members, NDB has approved approximately 80 projects across its member countries since its inception, accumulating a portfolio of US$ 30 billion. The Bank focuses on various sectors, including transport, water and sanitation, clean energy, digital infrastructure, social infrastructure, and urban development.
The impending NDB loans signal a transformative phase for Bangladesh, not only in terms of financial support but also in diversifying its sources of development credit. The infusion of funds is poised to accelerate crucial infrastructure projects, contributing to the nation’s overall progress and sustainability.