Maldives to count 2.5% to 3.5% interest

Bangladesh’s $200-$250 million loan to the Maldives will have an interest rate between 2.5 per cent – 3.5 per cent, and the recipient nation will have to pay back the amount within seven to ten years.

The Ministry of Finance responded positively to the island nation’s plea, and had already set the upper and lower limits for the total loan amount, interest rate and repayment period, central bank sources told The Business Post.

Bangladesh Bank sources say the ministry has completed all formalities for providing this loan to the Maldives, and the central bank will now move this procedure forward. It will set a loan amount and interest considering the reserve – which currently stands at around $46 billion.

Following Sri Lanka, the Maldives is going to be the second nation to get a loan from Bangladesh.

Though the Maldives had applied for $250 million, the central bank will decide on the final sum as per its capacity, says a recent finance ministry review, adding that the regulator will have the last say on the matter – in accordance with the limits set by the ministry.

Usually, the interest rates are fixed by adding two per cent on top of the London Interbank Offered Rate (LIBOR).

Last year, for the first time ever, the Bangladesh Bank loaned island nation Sri Lanka $200 million from its reserve.

Sri Lanka’s foreign exchange reserves nosedived – hitting $500 at one point – after the Covid-19 pandemic hammered its tourism industry. The situation had gotten so bad that the nation’s government imposed an indefinite ban on imports in March 2020.

Central bank sources say as the Maldives is seeking the loan with conditions similar to Sri Lanka’s, the overall process will remain mostly the same. The transactions will be carried out under the currency swap system.

Commenting on the matter, former lead economist of World Bank Dhaka office, Dr Zahid Hussain said, “The government says it has a reserve of $46 billion, but the actual figure is $7 billion less.

“In the figure, the government has included the sum it had loaned out to the Bangladesh Infrastructure Development Fund (BIDF) and Sri Lanka. The current reserve balance will allow Bangladesh to cover import costs for a maximum of five to six months.”

“Under these circumstances, I do not think it is feasible for Bangladesh to provide a loan to another country,” he added.