BANGLADESH INVESTMENT PROMOTION AND FINANCING FACILITY II PROJECT INFRASTRUCTURE GROWTH THROUGH PRIVATE-PUBLIC PARTNERSHIP APPROVAL DATE: END DATE: TOTAL COMMITMENT: IMPLEMENTING AGENCIES: BASIC INFORMATION April 05 June 30 $356.7 million Bangladesh Bank 2017 2022 OVERVIEW Bangladesh needs faster and higher growth to attain its vision of becoming an upper middle-income country by 2031. Inadequate infrastructure is among the key binding constraints to higher growth.It is estimated that the overall investment rate needs to go up from 26 percent of GDP to 34 percent of GDP for an 8 percent plus growth. Out of the total investment need, around $ 3-5 billion is needed annually for investment in infrastructure. The Investment Promotion and Financing Facility II (IPFF II) project helps Bangladesh to enhance the local financial institutions’ capacity to provide long-term financing for private sector led infrastructure projects diverse sectors, including energy and power, roads and bridges, industrial parks, waste management, health and education infrastructures and others. The project was undertaken following the success of the predecessor project, IPFF that facilitated financing of 21 sub-projects in the power, ICT, health, water treatment and port sector. In the first phase, $300 million IDA resources were put in and another US$ 300 million equivalent resources were crowded in from the market. 50 CHALLENGE TOWARDS THE FUTURE In Bangladesh, the required investment in infrastructure is constrained by the fiscal The IPFF II pipeline includes sub-loan applications for port, space and lack of adequate private participation in infrastructure sectors. The government industrial park, high-tech park, hospitals, and ICT sectors. In FY is promoting private sector-led infrastructure projects. But, due to limited capacity and 2019, about $30 million is expected to be disbursed for a dry- market constraints, the local financial institutions traditionally could not meet the longer dock and a high-tech park sub-project. In total, the project aims term financing demand for building infrastructures. As investment activities are mostly at stimulating the market for over $ 600 million infrastructure dependent on short-term commercial bank loans, private entrepreneurs find it difficult investment. It will collaborate with Bangladesh Securities and to source long-term equity and debt for funding long-term infrastructure investments. Exchange Commission (BSEC), IFC, and World Bank Group’s Moreover, globally, such long-term financing for infrastructure project requires a vibrant capital markets development initiatives to foster an ecosystem bond market for both government and corporate debt instruments. In Bangladesh, the where diverse financing instruments—l ike project bonds, capital market is nascent and there are several regulatory and institutional issues that guarantees, credit enhancements, mezzanine financing and need to be addressed before long-term financing for infrastructure can take a robust form. securitizations—can be issued and invested by institutional The project will focus on banking and non-banking financial institutions’ term lending investors like mutual funds, pension operations, but it will be constrained by their ability to issue and invest in capital markets funds, life insurance funds instruments, as governed by the Banking Companies Act 1991. along with banks. APPROACH Built on the success of IPFF I, IPFF II aims at piloting innovative instruments beyond simple lending for maximizing the crowding in effect. The project follows a financial intermediary lending model of financing whereby partial debt financing (up to 50 percen t of the total project cost) is provided for 8 – 20 years through participating financial institutions, selected based on rigorous performance indicators. Bangladesh Bank has a 10-member team that acts as the Project Implementation Unit on behalf of the Ministry of Finance for on-lending the fund. Finally, the private investment sponsor that was contracted by the concerned government agency/ministry utilizes the fund for construction and implementation of the infrastructure sub-project. EXPECTED RESULTS Over $350 million to be At least 15 banks and non-bank financial institutions to adopt World Improved capacity crowded in from the market as private Bank Performance Standards for management of environmental and of local financial institutions investment in infrastructure social risk management (ESRM) in infrastructure projects to lend for longer term THE WORLD BANK IN BANGLADESH | 51