Interested to get early access to our newsletter for free? Join now: https://forms.gle/Q2qkFdEUen76frat8

Source: The Daily Star

Bangladesh has made the first payment in taka for a project primarily backed by foreign loans, ushering in a new method of better maintaining foreign currency reserves.

The plan is to build a 24-kilometer elevated road connecting Dhaka and Ashulia for Tk 17,653 crore ($1.2 billion).

China is contributing 85% of the cost in the form of a loan at 2% interest over 20 years, with a five-year grace period. The Bangladesh government is responsible for the remaining 15%.

The Chinese contractor, China National Machinery Import & Export Corporation, is receiving the loan portion in US dollars from the Export-Import Bank of China. The bank will be reimbursed by the Bangladesh government.

According to Shahabuddin Khan, the project director, “we convinced them (the contractor) to accept the bill in taka as they will have some spending to do in Bangladesh.”

“They accepted our proposal while keeping the current context in mind,” he told The Daily Star last week.

Over 250 Chinese citizens, including engineers and employees, and 1,000 Bangladeshis are now working on the project, he claims.

To remedy a demand-supply imbalance in the foreign exchange market, the Bangladesh Bank sold foreign currencies and allowed the taka to depreciate.