Export-oriented industrialists have urged the government to let them use the idle funds meant for different foreign projects or received as foreign aid to import raw materials as the central bank is reducing the size of the Export Development Fund (EDF) to keep the foreign exchange reserves healthy.
Exporters say EDF is a lifeline for the country’s export sector. However, due to its reduction, they are already facing various troubles.
The country has a large amount of foreign funds sitting idle due to slow implementation of different projects and the government will still have to pay the interests. Under the circumstances, it could be a better option to create a new fund bypassing the forex reserve and allowing the exporters to operating without financial hassle, they said.
Though the proposal is limited verbally, exporters are planning to submit a written proposal to the concerned authority next month. A research farm is currently evaluating the possibilities and barriers of the proposal.
Echoing exporters, experts said that convincing donors and maintaining accountability of the funds will the biggest challenges. If the donors agree and the government can ensure protection against misuse of the fund, it will open a new window for Bangladesh’s export sector and this fund will be even bigger than the EDF.
Commenting on the issue, Research and Policy Integration for Development (RAPID) Chairman Mohammad Abdur Razzaque told The Business Post that using foreign funds as EDF would bring good financial support for exporters.
“Bangladesh is getting billions of USD every year from the development partners with marginal interest. However, the country failed to use the funds timely due to the slow implementation of projects. On the other hand, Bangladesh has to pay interest timely, though the projects are not completed”, he said.
The economist said that if the country can convince the lenders to use idle money, it will not only be helpful for exporters, but the country will able to make a profit from the interest, which will come from the fund borrowers.
“Though it is a big challenge to convince the lenders, and donors, I believe that it is possible. But transparency and accountability are most important there. But when the foreign stakeholders will involve the funds, accountability will ensure, I believe,” he added.
Policy Research Institute (PRI) Executive Director Ahsan H Mansur said, “This is a good proposal. However as the lenders/donors are providing funds for a specific project, this is not easy to convince them. I think the government should start discussing with the development partner.”
He added, “If the partner will allow using the fund for the export sector, it will be a piece of good news for the export sector. But there is a huge risk. If the borrowers do not repay the funds timely, government foreign debt liabilities will increase and their reputation will be damaged.
But the government may try to convince lenders. Some are likely to agree, he furthered.
Ground of the fund
To facilitate financing in foreign currency for input procurements by manufacturer-exporters, Bangladesh Bank created $300 million EDF in 1989 from the country’s forex reserve. As the export sector gradually expanded, the banking authority increased the figure in the severe time.
Before the Covid-19 pandemic, the EDF size was $3.5 billion. However, during the pandemic, the size gradually expanded and reached $7 billion on March 28, 2022.
When the country fell into a severe forex reserve shortage in the middle of 2021, the government sought support from the International Monetary Fund (IMF). The international lender asked to reduce EDF along with other recommendations.
The central bank has decided to reduce EDF size, individual use limit and increase interest rates to meet IMF recommendations.
As per their decision, the banking authority started to reduce the EDF size gradually from January 23 this year and currently reached $3.9 billion. It would be reduced to $2 billion in September. Besides, the central bank also increased the EDF interest rate to 4.50 per cent from 4 per cent in February this year.
It also reduced individual EDF limits for BGMEA and BKMEA by $20 million and $15 million respectively, including $15 million for individual exporters of leather goods and footwear sectors. The size was $30 million last year.
However, to keep support to the exporters, the central bank raised another Tk 10,000 crore fund and the amount likely to increase if needed, though the businesses claimed that they need foreign currency fund for smooth business, as buyers are deferring payment, and the bank failed to provide foreign currency due to the shortage.
Amid the situation, exporters are seeking alternative foreign currency-based funds such as EDF, and they are thinking that idle money for foreign projects and aid would be the best option. They requested the concerned authority to start the discussion with the lenders/donors regarding the issue.
Industry insiders said that major users of the export development fund (EDF) – Bangladesh Garment Manufacturers and Exporters Association (BGMEA), Bangladesh Knitwear Manufactures and Exporters Association (BKMEA) and Bangladesh Textile Mills Association (BTMA) - urged several times to the central bank governor and finance ministry officials to create a fund for exporters from the foreign support project accounts.
Speaking to The Business Post, BGMEA President Faruque Hassan said, “They are seeking funds for all export sectors to retain export growth.
The manufacturing export sector not only generates employment but also earns foreign currency. The government is facing a forex reserve shortage, and the crisis will linger when the mega projects’ foreign credit has to be paid to lenders.”
He added, “Only the export sector and expatriates can provide a big support to the government to tackle the crisis. That is why there is no alternative except to support the export sector and diversify the basket. As the EDF is reducing, funds from the foreign project would be an alternative to support us.”
RAPID Chairman Mohammad Abdur Razzaque also said, “If we can manage the partners to use freezing foreign currency for exporters with transparent, the export sector will get billions of USD every year to import raw materials. This also helps to reduce pressure from the country’s forex reserve.”
The fund should be jointly monitored by the central bank, ERD and lenders, and should distribute to those factories, who repaid EDF timely, the economist added.
