Foreign Loan and Economic Impact It is in the wake of an announcement that the excessive foreign borrowing of the previous regime has contributed to the present economic crisis that the deal is being negotiated. Each steel house that Arcelor will build costs Rs. 2.1 million. Thus, the Government will incur a foreign debt of over $ 1 billion for the 65,000 houses, to be paid back over a 10-year period. A financing arrangement through HSBC offers two options: a EU currency-based facility at EURIBOR +1.34% and a six-month US dollar-based facility at LIBOR +1.74%. concessionary rates apply to 85% of the loan. The remaining 15% will be based on commercial rates of LIBOR +5.61%. For example, based on the current rates for LIBOR, the applicable interest rate for the loan is 3.23%. Perhaps the Government is attracted by the opportunity to take this loan and show macroeconomic growth. Certainly, such large-scale construction activities will account as economic activities of the country and contribute to its GDP figures. However, taking another massive loan will only add to the crisis by continuing to increase our foreign debt. It will deplete our foreign reserves and add to our future balance of payment problems. Although the financing comes with a one-year grace period, the Government will eventually have to pay back the dollar loan. A few years down the line it may contribute to another similar crisis like the one we are presently experiencing. Alternatively, obtaining financing for the housing project through local financing will have less impact on the country’s external finances. The required financing can be raised through a combination of Government fund allocation, local bank borrowings and an arrangement with a donor agency like the ADB. This is how many of our highways
Foreign Loan and Economic Impact It is in the wake of an announcement that the excessive foreign borrowing of the previous regime has contributed to the present economic crisis that the deal is being negotiated. Each steel house that Arcelor will build costs Rs. 2.1 million. Thus, the Government will incur a foreign debt of over $ 1 billion for the 65,000 houses, to be paid back over a 10-year period. A financing arrangement through HSBC offers two options: a EU currency-based facility at EURIBOR +1.34% and a six-month US dollar-based facility at LIBOR +1.74%. concessionary rates apply to 85% of the loan. The remaining 15% will be based on commercial rates of LIBOR +5.61%. For example, based on the current rates for LIBOR, the applicable interest rate for the loan is 3.23%. Perhaps the Government is attracted by the opportunity to take this loan and show macroeconomic growth. Certainly, such large-scale construction activities will account as economic activities of the country and contribute to its GDP figures. However, taking another massive loan will only add to the crisis by continuing to increase our foreign debt. It will deplete our foreign reserves and add to our future balance of payment problems. Although the financing comes with a one-year grace period, the Government will eventually have to pay back the dollar loan. A few years down the line it may contribute to another similar crisis like the one we are presently experiencing. Alternatively, obtaining financing for the housing project through local financing will have less impact on the country’s external finances. The required financing can be raised through a combination of Government fund allocation, local bank borrowings and an arrangement with a donor agency like the ADB. This is how many of our highways
ND59.docx