Padma Bridge financing vs. word-of-mouth strategyby Dr Aminul Islam Akanda
THE Padma Bridge is a high priority national project of the Awami League government. It is a 6.15-kilometre long and 21.10-metre wide bridge with 15.1-kilometre approach roads to connect the south-western districts with the capital. It will be a very important infrastructure for economic development of more than 30 million people. The construction work of the $2.9 billion project was expected to begin in 2012 with financial assistance of the World Bank ($1.2 billion), the Asian Development Bank ($615 million), the Japan International Cooperation Agency ($400 million) and the Islamic Development Bank ($140 million). The government is a co-financer that has already spent Tk 15 billion on land acquisition and rehabilitation projects.
However, the construction work became uncertain when the World Bank suspended its $1.2 billion credit line last year alleging corruption conspiracy against Bangladeshi officials and executives of a Canadian firm. Considering the uncertainty of the World Bank financing, the government looked for an alternative source and almost confirmed a $2.2 billion Malaysian fund. Meanwhile, the bank, after almost one year of unsuccessful dealings, cancelled the agreement on June 29. It was usual for the ministers and high officials to react against the bank’s accusation. However, the government standing was ambiguous when the finance minister kept the World Bank chapter open to get the decision reviewed. An alternative deal with a Malaysian company went out of the frame when the prime minister announced that the bridge would be built with domestic fund, eight days after the World Bank decision.
Meanwhile, the word-of-mouth strategy in political game became dominant to whip up nationalistic sentiments. Moreover, come business organisations congratulated the prime minister, advertising their commitment to investing in the project. Besides, Suranjit Sengupta, a minister without portfolio, introduced a formula of bringing 70 million mobile subscribers in the financing net through Tk 2 in daily donations. This emotion-driven capital accumulation map sufficiently showed our domestic capacity. However, the question why people would respond to such sentimental words does not seem to have been factored in. On the other hand, the government’s anti-World Bank rhetoric risks straining the country’s relations with the multilateral lending agency.
Be that as it may, the question is whether the prime minister’s plan to construct the Padma Bridge without external finance is realistic. According to the estimates, Tk 32 billion will be needed in 2012-13, Tk 79 billion in 2013-14, Tk 78 billion in 2014-15 and Tk 38 billion in 2015-16. The current year’s requirement, as announced, will be redirected from the annual development programme. The government also plans to issue sovereign bonds to collect $750 million and other accumulations will be defined in future. However, mobilisation of domestic resources has hardly been impressive in the past. Regardless of the government rhetoric, the public-private partnership has not yet taken off although Tk 30 billion was allocated three years ago. In such circumstances, if the government continues to redirect funds from the ADP for the Padma Bridge, other projects will certainly be crowded out.
The government is already reeling under high subsidy burden and inadequate allocation for its thrust sectors. Although the inflow of remittance has kept foreign exchange reserve adequate, foreign aid for public projects has dwindled over the years. As such, receipt of foreign direct investment is much needed. In fact, did we not welcome the World Bank’s credit line for the Padma bridge project? Was it not highlighted in the news media?
Amidst the raging global economic crisis, the government needs to realise the necessity of the soft loan from the World Bank. It needs to also have a closer looks at the country’s institutional capacity to finance such a colossal project without import of materials and without a foreign company. We might be able to prove our national capacity bypassing the World Bank, but the domestic financing for the project is highly likely to have some negative impacts on the economy.
The additional outflow of foreign currency for import of materials will raise the price of dollar for which the estimated cost of Tk 230 billion is expected to increase to up to Tk 300 billion. Moreover, fund accumulation from non-residents may not be steady because of downtrend in the current account balance. The current account balance, which was 3.7 per cent of the gross domestic product in 2009-10 and is projected to decrease to 0.3 per cent of the GDP in 2012-13, could slide to a negative value. On the other hand, devaluation of the local currency will raise the price of imported products and will contribute to inflation. In addition, it will continue to provide additional tax burden on the taxpayers.
In this context, the government’s strategy to enrich domestic capacity needs to be complemented with a friendly compliance strategy to handle donors and foreign investors. It is reported that the Anti-Corruption Commission failed to comply with the World Bank’s requirement due to its limitation with domestic policy. However, what was the limitation for the ministers to control corruption of their personal secretary or officials. If and when domestic resources will be allocated for the multi-billion dollar project, will the designated officials and implementing agents hesitate to divert billions of taka to their personal accounts?
Ultimately, the government needs to address the corruption-related problem first and foremost. To this end, mere assertions of commitment will not be enough; they have to be complemented with decisive and demonstrative actions. Meanwhile, people will look forward to the dream of Padma Bridge coming to reality.
Dr Aminul Islam Akanda is associate professor and chairman, Department of Economics, Comilla University. firstname.lastname@example.org.
comments powered by Disqus