The Ministry of Finance (MoF) plans to issue sovereign guarantee worth $4.50 billion against the priority projects of the government by June next year.

The amount of guarantee sought by different ministries is $2.70 billion more than the limit of non-concessional loan the government is entitled to take under a credit agreement with the International Monetary Fund (IMF) until June 2013.

The projects that different ministries intend to undertake include large power projects and procurement of aircraft and railway locomotives.

The MoF has already assured different ministries of issuing the non-concessional sovereign guarantee to the tune of $1.90 billion by mid 2013, which also crossed the threshold of $1.75 billion fixed under the Extended Credit Facility (ECF) agreement with the IMF.

The finance ministry officials are now planning to seek relaxation of the limit of non-concessional loan from the IMF to meet the soaring demand for sovereign guarantees.

"We are tied to ECF conditions. But we are under pressure from different ministries as without government guarantee suppliers seldom accept any large projects," a senior finance ministry official told the FE.

"We will approach the IMF for enhancing the maximum limit of government guarantee," he added.

Of the $4.50 billion guarantee, power sector alone will need about $2.5 billion to implement its 11 large projects, sources said.

More than 2200 MW power is expected to be generated from the projects.

The power projects are -- improvement in power sector efficiency, Ashuganj 225 MW and 450 MW plants, Kodda 150 MW dual fuel power plant, Bibiyana 300-450 MW, Shahjibazar 300 MW plants, Barapukuria 250 MW thermal power extension project, Ghorasal 300-450 MW project, Ghorasal 3rd unit re-powering project and Chapainawabganj 100 MW project.

The IMF in September last agreed on the issuance of non-concessional loan guarantee by the government worth $1.75 billion until June, 2013 though the government proposed $3.0 billion guarantee ceiling.

Of the agreed total guarantees, non-concessional guarantees worth $1.0 billion may be issued by December this year, and the rest $750 million by June next year. In case the government is unable to issue the guarantee against the whole amount of the ceiling by this year, it will get the facility to carry forward the remaining amount for the same purpose, the ministry official noted.

The government has to restrict its issuance of non-concessional guarantees within the limit of $1.75 billion under the Quantitative Performance Criteria (PC) and the Indicative Targets that are included in the ECF agreement between the government and the IMF.

Neither the government nor the Bangladesh Bank can exceed the set limit of the aggregate guarantee during the stipulated time, said a MoF official.

The IMF in April last approved $987 million in loans for Bangladesh under the ECF to help the country overcome its balance of payment (BoP) constraints. Bangladesh has already received US$141 million as the first installment of the ECF fund.

The next tranche of the ECF fund is expected to be disbursed at the end of the current month, a finance ministry official said.

In addition to power projects, the officials said they were pledge-bound to issue $240 million worth of sovereign guarantee to procure 70 diesel electric locomotives for Bangladesh Railway by the next couple of months.

Furthermore, the government is also planning to issue sovereign bond of $750 million in international market by June, 2013 as Prime Minister Sheikh Hasina has already approved the issuance, a source in the ministry said.

Besides, the finance officials have earmarked $850 million as government guarantee under the head of 'miscellaneous' to be issued by the middle of next year under the heads of any urgent projects, the source added.

"It is a complicated situation to manage the huge demand for loan guarantee and convince the IMF towards our need," a high official in the finance ministry said.

He, however, expressed his optimism about securing a way out by the next month.

News: The Daily Financial Express/Bangladesh/11-Nov-12